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Assume that you have a company that makes $4 per share in net income. Assume...

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Finance

Assume that you have a company that makes $4 per share in net income. Assume the company has a incremental return on investment of 30% and investors require a 15% rate of return on companies of this type.

  1. If the company were to payout 100% of their earnings, what would be the price and P/E of the stock?

  1. If the company were to payout 80% of their earnings, what would be the price and P/E of the stock?

  1. If the company were to payout 60% of their earnings, what would be the price and P/E of the stock?

  1. Repeat the process in a) thru c), except assume the incremental return on investment is now 10%.

100% payout

80% payout

60% payout

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