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In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five

In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the terminal stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.41. The dividends are expected to grow at 13 percent over the next five years. In five years, the estimated payout ratio will be 30 percent and a benchmark PE will be 19. The required return is 11 percent.

a) What is the target stock price in five years?

b) What is the stock price today?

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