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Homework answers / question archive / The market capitalization rate for Admiral Motors Company is 11%
The market capitalization rate for Admiral Motors Company is 11%. Its expected ROE is 12% and its expected EPS is $6. The firm's plowback ratio is 50%.
a. Calculate the growth rate. (Input your answer as a nearest whole percent.)
Growth rate r
1%
b. What will be its P/E ratio? (Do not round intermediate calculations.)
PIE ratio
r
a) Computation of Growth Rate:
Growth rate=ROE*Plowback ratio
= 0.12*0.50
= 0.06 or 6%
b) Computation of P/E Ratio:
Dividend payout ratio=1-Plowback ratio
= 1-0.5
= 50%
Hence expected dividend=(50%*EPS)
= 0.5*$6
= $3
Current price=D1/(Market capitalization-Growth rate)
=3/(0.11-0.06)
=$60
P/E Ratio = Market Price/EPS
=$60/$6
=10
