medium · CFA Level I equity
Pinion Logistics is a major transportation provider currently operating in an industry experiencing rapid demand acceleration and gentle competition. The firm has a dividend payout ratio of 30%, a required rate of return of 11%, and an expected sustainable growth rate of 6%. Current earnings per share (E_0) are 4.00. Analysts are evaluating the firm's forward P/E multiple against historical averages.
If Pinion Logistics increases its dividend payout ratio to 40% while maintaining its ROE, but the resulting decrease in retained earnings causes the growth rate (g) to drop to 4%, what is the new justified forward P/E multiple?
- 8.00
- 6.00
- 5.71
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