A Conceptual Look Relevant Rates of return Ke= the expected return on the company's equity Earnings available to common shareholders = e s Market value of common stock outstanding Assumptions: Earnings are not expected to grow 100%dividend payout Results in the valuation of a perpetuity Appropriate in this case for illustrating the theory of the firm 17-517-5 E S A Conceptual Look -- Relevant Rates of Return = = ke = the expected return on the company’s equity Earnings available to common shareholders Market value of common stock outstanding ke Assumptions: • Earnings are not expected to grow • 100% dividend payout • Results in the valuation of a perpetuity • Appropriate in this case for illustrating the theory of the firm