Question

Intrinsic value according to the DDM = D1/(k-g), where the P/E is1/(k-g). In english, what is the p/e formula telling us? Thanks!

Answer 1

The P/E formula is telling us that the firm is expected to pay out all of its earnings as dividends.

P=D1/(k-g)
->P/E=(D1/E)*(1/(k-g)) = 1/(k-g) if D1=E

Answer 2

P/E=(1-b)/(k-g), IT SAYS THAT THE FIRM WILL KEEP PAYING THIS CASH TO INVESTORS TILL PERPETUITY.

b=RETENTION RATIO
1-b IS DIVIDEND PAYOUT.