I've never used the Google "Ask a Question" before.  I want to do some
research on a company whose stock I'm interested in adding to my 401K,
but I don't have the time due my work schedule and family. Due to
enrollment, my deadline is Sept 19th at the latest.
Question 1:
In each case below, indicate what will happen to the direction of the
P/E ratio over the long term.  Also, if the change could have a two
directional effects on P/E, explain both. I'm NOT interested in the
immediate arithmetic effect of having the numerator or denominator
change.  I want the long-term effeect on the P/E ratio.
  a. ROE increases
  b. Debt to equity ratio increases
  c. Profitability on the company's plant and equipment increases
  d. The economy's rate of growth increases but int rates in the economy are 
     rising
Question 2:
Comapny X has dividend payout ratio of 20% and earned $1.5 per share
in the year just ended.  Starting now, company X's profits will grow
at a 10% compound annual rate, the payout ratio will rise to a steady
level of 25% and the require rate of return is 11%.
 a. What current value would I assign to the stock of company X?
 b. Use the infinite period (constant growth model) to determine its price-
    earning ratio on this year's earnings.  
 c. I want to ignore the dividend return, given my annual require return, and 
    assuming that the stock sells at the value in part (a) at the eand of one 
    year.  Please explain whether I would buy the stock now at a price of $48 
    and at $35.  Please shows calculations so that I can better understand 
    whether I should consider this stock for my 401K.

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Clarification of Question by coldsprings-ga on 17 Sep 2006 19:37 PDT

Due to my 401K enrollment has been extended, my new deadline is by
Sept 26th. If you're answering my question, please do it by tSept
26th, so I can have  a little time to make a decision whether I want
to add the stock to my portfolio.


Thanks