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I am doing this question that I couldn't find the payout ratio.

For you, company equity beta is unknown, it has a target i.e. current debt to book equity ratio: 0.5 and target debt to market capitalization ratio: 0.1. Its debt is risk-free since the loan was granted by the government at a low rate to stimulate the economy after the pandemic. The total amount of debt amounted to 50 million euro at the end of 2019.

It is expected that the company will retain the same equity growth and payout ratio as in 2019 for the next 5 years until the end of 2024. Starting from 2025, the company enters into the steady state with ROE being 4 percentage point lower than the required cost of equity and the payout ratio of 60% of net income. It is also known that: risk-free rate is 0.5%, Net income amounted 8 million euro in 2019 and equity at the end of 2018 of 96 million euro. You also have information about other companies in the same country that are listed companies on the stock exchange.

Company A Industry:Real Estate D/E Ratio:0.3 Re: 8% Rd:2%

Company B Industry:Financial Services D/E Ratio:0.5 Re:10% Rd:3%

Company C Business Consulting D/E Ratio:0.1 Re:6.32% Rd:2%

May I know how should can I find the payout ratio? I suppose the dividend for the year 2019 shouldn't be 0?

Thank you in advance.

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  • $\begingroup$ What is the question to be answered or the variable that you have to calculate? $\endgroup$ – noob2 May 26 '20 at 12:38
  • $\begingroup$ Thank you for replying. I have to calculate the intrinsic value of the company using Dividend Discount Model and Abnormal Profit Model, and to do that i need to know the payout ratio $\endgroup$ – silverpegasus May 27 '20 at 1:57

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