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Business, 18.12.2019 18:31 ambrosiastevens99

International flavors and fragrances, a leading creator and manufacturer of flavors and fragrances, paid out dividends of $0.75 per share on earnings per share of $1.64 in 1992. the firm is expected to have a return on equity of 20% between 1993 and 1997, after which the firm is expected to have stable growth of 6% a year (the return on equity is expected to drop to 15% in the stable growth phase.) the dividend payout ratio is expected to remain at the current level from 1993 to 1997. the stock has a beta of 1.10, which is not expected to change. the cost of equity will be 13.05% throughout.

estimate what percentage of this p/e ratio can be ascribed to the extraordinary growth in earnings that the firm expects to have between 1993 and 1997.

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