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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 pald a dividend of $1.55. The dividends are expected to grow at 17 percent over the next five years. In five years, the estimated payout ratio is 40 percent and the benchmark PE ratio Is 29. a. What Is the target stock price In five years? (Do not round Intermedlate calculations and round your answer to 2 declmal places, e.g., 32.16.) b. What is the stock price today assuming a required return of 13.5 percent on thls stock? (Do not round Intermedlate calculetions and round your answer to 2 declmal places, e.g., 32.16.) a. Stock price in 5 years b. Stock price today
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