No-Growth Industries pays out all of its earnings as dividends. It will pay its next $4 per share dividend in a year. The discount rate is 15%.

No-Growth Industries pays out all of its earnings as dividends. It will pay its next $4 per share dividend in a year. The discount rate is 15%.

a.	What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

P/E ratio

b.	What would the P/E ratio be if the discount rate were 10%? (Round your answer to 2 decimal places.)

P/E ratio

Explanation:

Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations.

a.

Earnings = DIV1 = $4

Growth rate = g = 0

P0 =	$4	= $26.67
	0.15 − 0

P/E = $26.67/$4 = 6.67

b.

If r = 0.10 P0 =	$4	= $40 P/E increases to $40/$4 = 10.00.
	0.10