A decrease in the tax rate would increase the company’s EPS and thus would increase the value of the firm. (The equation for EPS includes the term (1 ? t).)
The other statements are incorrect.
Increase in dividend payout/reduction in earnings retention. In this case, an increase in the dividend payout will likely decrease the P/E ratio because a decrease in earnings retention will likely lower the P/E ratio. The logic is as follows: Because earnings retention impacts both the numerator (dividend payout) and denominator (g) of the P/E ratio, the impact of a change in earnings retention depends upon the relationship of ke and ROE. If the company is earning a higher rate on new projects than the rate required by the market (ROE > ke), investors will likely prefer that the company retain more earnings. Since an increase in the dividend payout would decrease earnings retention, the P/E ratio would fall, as investors will value the company lower if it retains a lower percentage of earnings.
Decrease in the expected inflation rate and decrease in the required rate of return. The expected inflation rate is a component of ke (through the nominal risk-free rate). ke can be represented by the following: nominal risk-free rate + stock risk premium, where nominal risk-free rate = [(1 + real risk-free rate) × (1 + expected inflation rate)] – 1.
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If the rate of inflation decreases, the nominal risk-free rate will decrease.
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ke will decrease.
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The spread between ke and g, or the P/E denominator, will decrease.
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P/E ratio will increase.
发表于 2010-4-23 11:11
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