Problem $8-19$ P$/$E Model and Cash Flow Valuation $($LG$8-5,$ LG$8-7)$

Suppose that a firm's recent earnings per share and dividend per share are $$2\mathrm{.}30$ and $$1\mathrm{.}30,$ respectively. Both are expected to grow

at $7$ percent. However, the firm's current P$/$E ratio of $22$ seems high for this growth rate. The P$/$E ratio is expected to fall to $18$ within five

years.

Compute the dividends over the next five years.

Compute the value of this stock in five years.

Calculate the present value of these cash flows using a $9$ percent discount rate.

Complete this question by entering your answers in the tabs below.

Dividends

Stock price

Present value

Calculate the present value of these cash flows using a $9$ percent discount rate.

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

Present value