Problem $8-20$ Spreadsheet Problem: 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 $$2\mathrm{.}55$ and $$1\mathrm{.}40,$ respectively. Both are expected to grow at $11$ percent. However, the firm's current $\frac{P}{E}$ ratio of $15$ seems high for this growth rate. The P$/$E ratio is expected to fall to $11$ within five years.

Compute the dividends over the next five years.

Compute the value of this stock price in five years.

Calculate the present value of these cash flows using a $13$ percent discount rate.

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

Dividends

Present value

Calculate the present value of these cash flows using a $13$ percent discount rate.

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

Present value