Question

Arts and Crafts, Inc. will pay a dividend of $2 per share in 1 year. It sells at $40 a share, and firms in the

same industry provide an expected rate of return of 13%. What must be the expected growth rate of the company’s dividends? (Do not round intermediate calculations. Enter your answer as a whole percent.)

No-Growth Industries pays out all of its earnings as dividends. It will pay its next $2 per share dividend in a year. The discount rate is 10%.

a. What is the price-earnings ratio of the company? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What would the P/E ratio be if the discount rate were 4%? (Round your answer to 2 decimal places.)

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