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:

Standard Deviation

A measure that quantifies the amount of variation or dispersion of a set of data values from the mean.

Standard Normal Random Variable

A special case of the normal distribution with a mean of zero and a standard deviation of one.

Probability

The measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

z

A standard score representing the number of standard deviations an observation or datum is above or below the mean of what is being observed or measured.