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pig84
Nov 1, 2012, 09:10 AM
hi, I'm new to finance and was being tasked with below question. Need some advice whether my answers are correct

A firm that pays out 65% of its earning as dividend has an accounting rate of return of 20%. Its P/E ratio is 10 and earnings per share is 108 cents.
I. What is the price per share?
II. What is the dividend yield?
III. If shares were bought, what would be the payback period? Assume the only return is the dividend.
IV. What is the net book value per share of the asset investment of the company?
V. If the risk-adjusted required rate of return is 6%, what would be the NPV per share for buying shares?
VI. Would you buy shares using AROR or NPV?
Solution
I. What is the price per share?
P/E ratio x earnings per share = 10 x 108 = $10.80

II. What is the dividend yield?
Yield = Dividend/Share price = 65%/$10.80 = 6.01%

the rest I really got no idea, please help me

paraclete
Nov 1, 2012, 03:05 PM
Your answers are correct

Payback relates to how long it takes you to get your money back you pay 10.80 get a dividend of 6.01 so 10.8/6.01

6.01 represents a rate of return on assets of 20%

A risk adjusted rate refers to the way these stocks relate to the overall market so over to you to do some more research