Equity Investments Q239

0. Two companies, Gamma and Theta have justified forward P/E ratios of 12.59x and 14.29x respectively. Their ROE and payout ratios are:
Company Gamma Theta
Return on equity 15.00% 13.50%
Payout ratio 45.00% 50.00%

The required rate of return is 11%. If Gamma’s payout ratio increases to 55% and Theta’s payout ratio decreases to 40%, what would be the most likely resultant effect on their justified P/E ratios?

Answer
Comment
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Option : B
Explanation :

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