Problem $7-30$ PE and Terminal Stock Price $[$LO $1]$ Problem $7-30$ PE and Terminal Stock Price $[$LO $1]$

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\mathrm{.}26.$ The dividends

are expected to grow at $11$ percent over the next five years. In five years, the estimated payout ratio will be $45$ percent and a

benchmark PE will be $21.$ The required return is $13$ percent.

a$.$ What is the target stock price in five years?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

b$.$ What is the stock price today?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

a$.$ Target price in five years

b$.$ Stock price today

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\mathrm{.}26.$ The dividends are expected to grow at $11$ percent over the next five years. In five years, the estimated payout ratio will be $45$ percent and a benchmark PE will be $21.$ The required return is $13$ percent.

What is the target stock price in five years?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

What is the stock price today?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$