Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
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 $1.19. The dividends are expected to grow at 14 percent over the next five years. The company has a payout ratio of 30 percent and a benchmark PE of 21 . The required return is 14 percent. What are the projected dividends for each of the next five years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) What is the EPS in five years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) What is the target stock price in five years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) What is the stock price today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions