Assuming estimates of .30, .15 and 0.135 for the dividend payout, required rate of return, and expected growth rate, respectively, calculate the earnings multiplier.
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A. B. C. D. E.E
The earnings multiplier or P/E ratio = Dividend payout ratio/Required rate of return-Expected growth rate. Analyzing these inputs and the underlying factors, and comparing these to the indications of the macroanalysis, the analyst forecasts an earnings multiplier for the firm. In this example, P/E = .3/(.15-.135) = 20 times.