Exhibit 12.8 Use the Information Below for the Following Problem(S)

question 38

Multiple Choice

Exhibit 12.8
Use the Information Below for the Following Problem(S)
As an economist for a research firm you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been slow for 5 years, you expect the dividend-payout ratio to be 55%. Long-term government bond rates are at 6% and the equity risk premium is estimated to be 3%. Return on equity (ROE) is estimated to be 11%.
-Refer to Exhibit 12.8.What is your expectation of the market P/E ratio?

• A) 9.17
• B) 11.11
• C) 13.58
• D) 18.33
• E) 21.42

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Definitions:

Ratify

To formally approve or confirm an agreement or act, making it officially valid.

Breach

The failure to perform obligations as stipulated in a contract, leading to potential legal consequences.

Liability

The state of being legally responsible for something, especially in terms of debts or legal obligations.

Nuisance

An act, condition, or thing unreasonably interfering with the use or enjoyment of land or property of another.