Equity Research
Derive a justified P/E from fundamentals: 50% payout, 4% growth, 9% cost of equity.
Model answer
From the Gordon growth model, price equals next year's dividend over (r − g): P = E1 x payout / (r − g). Divide through by forward earnings and the justified FORWARD P/E is payout / (r − g) = 0.50 /…
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