- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 23. Market-Based Valuation: Price and Enterprise Value Multiples
- Subject 3. Price to Earnings: Valuation Based on Forecasted Fundamentals
CFA Practice Question
For FPL Group, Inc. (FPL), a utility analyst, forecasts a long-term payout rate of 50 percent, a long-term growth rate of 5 percent, and a required rate of return of 9 percent. Based upon these forecasts of fundamentals, what is FPL's justified trailing P/E?
Correct Answer: Trailing justified P/E is:
P/E = (1-0.5)(1+0.05)/(0.09 - 0.05) = 13.125.
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