土豆妮

An analyst focusing mostly on financial stocks is likely to prefer valuing stocks via the:

A) price/book ratio.

B) price/sales ratio.

C) dividend yield.

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The price/book ratio is a preferred tool for valuing financial stocks.

土豆妮

At a CFA society function, Robert Chan comments to Li Chiao that the expected dividend growth rate for Xanedu Industries has decreased 0.5% from 6.0% to 5.5%. Chan claims that since Xanedu will maintain their historic dividend payout ratio (g) of 40% and cost of equity (k) of 12%. Xanedu's P/E ratio will also decrease by 0.5%. Is Chan correct?

A) Yes, Xanedu's P/E ratio will increase by approximately 0.5%.

B) No, Xanedu's P/E ratio will decrease by approximately 7.8%.

C) No, Xanedu's P/E ratio will increase by approximately 7.8%.

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Chan is not correct. P/E_Xanedu = payout ratio / (k - g)
When the expected dividend growth is 6%, P/E = 0.40 / (0.12 - 0.06) = 6.67
When the expected dividend growth is 5.5%, P/E = 0.40 / (0.12 - 0.055) = 6.15
The percentage change is (6.15 / 6.67) - 1 = -7.80%, representing a 7.80% decrease.

土豆妮

At a CFA society function, Andrew Caza comments to Nanda Dhople that the expected dividend growth rate (g) for Zeron Enterprises Inc (ZEI) is expected increase 0.5% from 6% to 6.5%. Caza claims that since ZEI will maintain their historic dividend payout ratio (g) of 50% and cost of equity (k) of 10%, ZEI's P/E ratio will also increase by 0.5%. Is Caza correct?

A) No, ZEI's P/E ratio will decrease by approximately 14.32%.

B) Yes, ZEI's P/E ratio will increase by approximately 0.5%.

C) No, ZEI's P/E ratio will increase by approximately 14.32%.

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Caza is not correct. P/E_ZEI = payout ratio / (k - g)
When the expected dividend growth is 6%, P/E = 0.50 / (0.10 - 0.06) = 12.50
When the expected dividend growth is 6.5%, P/E = 0.50 / (0.10 - 0.065) = 14.29
The percentage change is (14.29 / 12.50) - 1 = 14.32%, representing a 14.32% increase.