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Hello Sir,
one of the troubling MCQ’s I hv come across,
When Div Cover = 3.0 & Div Yield = 9%,
What is the PE Ratio ??
is it:
PE = MV/EPS
DIV YIELD = DIV / MV
DIV COVER = EPS / D
So…
PE = D/Div Yield / D x Div Cover
= D(D x Div Cover) / Div Yield
= D(D x 3.0) / 9%
=3.0D^3/9%
Therefore D = CubeRoot (0.09PE/3)
So…
PE = 3.0 [ CubeRoot (0.09PE/3) ] ^ 3 / 9%
= 3.0 x 0.09PE/3 / 9%
so 0.09PE/3.0 = 0.09PE/3.0
so 1 = 1
and now I am lost :(….
or is this question wrongly printed ??
I will answer, but in future if you want me to answer then you must ask in the F9 Ask the ACCA Tutor Forum – this forum is for students to help each other.
You were correct so far as PE = (D/Divi yield) / (D x Div cover)
But then you went wrong.If you divide top and bottom by D, then you get 1 / (Divi yield x Div cover)
So PE = 1 / (0.09 x 3) = 3.70
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