单选题

An analyst collects the following data on the return on equity (ROE) and the payout ratio for two companies, M and N. Using a required return of 12.4% for both companies, she computes the justified forward P/E ratios, which are also given below.

Company	Return on equity(%)	Payout ratio (%)	Justified forward P/E
M	12.0	130	7.5
N	14.0	40	10.0

If Company M increases its dividend payout ratio to 40% and Company N decreases its dividend payout ratio to 30%, which of the following will most likely occur? The justified P/E ratio of:

A、 both companies would increase.
B、 both companies would decrease.
C、 Company M would increase but that of Company N would decrease.

【正确答案】 A

【答案解析】

A is correct. Dividend growth rate = (1 - Payout ratio) x ROE; Justified forward P/E: P₀ /E₁ = p/(r - g).
Using the new payout ratios, the justified forward P/Es, calculated below, of both firms would increase.
Company M:
New dividend growth rate = (1 -0.4) ×12% = 7.2%;
New Justified forward P/E = 0.4/(0.124 - 0.072) ≈ 7.7.
Company N:
New dividend growth rate = (1 - 0.3) × 14% = 9.8%;
New Justified forward P/E = 0.3/(0.124 - 0.098) ≈ 11.5.