Equity Investments Q239
239Two 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?
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