Answer:
Assume that the Plow back Ratio is 50
Now,
To Compute the growth rate;
Growth rate = Return on equity × Plow back ratio
Growth rate = 10% × 0.50
Growth rate = 5.0%
Computation of the stock price.
Stock price = Dividend pa share / (Required rate - Growth rate)
Stock price = Earnings pa share × (1 - Plow back ratio) / (Required rate -Growth rate)
Stock price = $4 × (1 - 0.50) / (10% - 5.00%)
Stock price = $2.00 / 5.00%
Stock price = $40
Computation of the P/E ratio.
PIE ratio = Stock price / Earnings pa share
PIE ratio = $40 / $4
PIE ratio = $10
Answer:
22.69%
Explanation:
Margin of safety = (forecasted sales - break-even sales) / forecasted sales
( $238,000 - $184,000) / $238,000 x 1000 = 22.69%
The answer is b. In a table that is provided
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