A Compute the Price-Earnings Ratio Under the Following Sets of Assumptions

question 3

Essay

a. Compute the price-earnings ratio under the following sets of assumptions:
$\begin{array}{|l|l|l|l|}\hline & \text { Cost of Equity } & \text { Growth Rate } & \text { P/E } \\\hline \text { Scerario } & \text { Capital } & \text { in Earuings } & \text { Ratio } \\\hline 1 & 0.12 & 0.08 & \\\hline 2 & 0.12 & 0.10 & \\\hline 3 & 0.14 & 0.08 & \\\hline 4 & 0.17 & 0.08 & \\\hline 5 & 0.17 & 0.10 & \\\hline & & & \\\end{array}$
b. Assess the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate.

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Definitions:

Earth's Crust

The outermost layer of Earth, comprising both continental and oceanic crust, and forming the solid surface of the planet.

Earth's Mantle

The thick layer of rock between the Earth's crust and core, making up about 84% of Earth's volume.

Atomic Weight

The average mass of atoms of an element, calculated using the relative abundance of isotopes in a naturally-occurring element.

Neutrons

Subatomic particles found in the nucleus of an atom, with no electric charge and a mass slightly greater than that of protons.