P.E RATIO — OpenTuition Forums

Kkashif10y ago

Q1) KK plc has a market value per share of $3.20 The dividend cover is 3.0, and the dividend yield is 4% what is the P.E RATIO for KK plc? would really appreciate if answer this question with some logic because even after studied the whole chapter 13, i have not still got the concept behind these few questions which i have attempted in Mock Exam. Really need a help. and also need help with this question too. Thanks Q2) A company has just paid dividend of $0.23 per share. shareholders expecting the dividend to remain at $0.23 per share next year, but to increase at an average rate of 3% per annum thereafter. Shareholder required rate of return is 12%, and the rate of corporation tax is 25%. what will be the market value per share?

John MoffatTutor10y ago#1

Q1 If dividend yield is 4% then the dividend is 4% x $3.20 = $0.128 Dividend cover is 3, and therefore the EPS = 3 x 0.128 = $0.384 Therefore PE = MV/EPS = 3.20/0.384 = 8.33

John MoffatTutor10y ago#2

Q2 We use the dividend valuation formula from the formula sheet. The 'trick' however is that the Do(1+g) on the top of the formula is in fact the dividend in 1 years time. Usually it is the current dividend + growth, but in this question it is an actual 23c in 1 year (and not 23 + growth) Therefore the MV = 23 / (0.12 - 0.03) = 256c or $2.56

Kkashif10y ago#3

Thanks a lot John, really appreciate it :)

John MoffatTutor10y ago#4

You are welcome :-)

AAzad10y ago#5

Thank you very much!

John MoffatTutor10y ago#6

You are welcome :-)