In the Model P/E = (D₁/E₁)/(k - G),the P/E Should

question 24

Essay

In the model P/E = (D₁/E₁)/(k - g),the P/E should increase if the dividend payout rate increases,other things the same.If the payout rate was intentionally increased by the board of directors,other things are likely not to stay the same.What is likely to happen to the dividend growth rate and the required return?

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Definitions:

Interest Rates

The price paid for borrowing money, usually expressed as a percentage rate over a period of one year.

Balance Of Trade

The difference between imports from and exports to another country. If imports are larger a trade deficit exists. If exports are larger there is a trade surplus.

Investing Activities

Transactions and events related to the acquisition and disposal of long-term assets and investments, reported in the cash flow statement.

Hedging

A maneuver or contract that eliminates risk from a transaction. In international trade, eliminating exchange rate risk by purchasing a forward contract for delivery of foreign exchange at a specified rate at a specified time.