Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Problem 8-35 P/E Model and Cash Flow Valuation (LG8-5, LG8-7) Suppose that a firm's recent earnings per share and dividend per share are $3.20 and
Problem 8-35 P/E Model and Cash Flow Valuation (LG8-5, LG8-7) Suppose that a firm's recent earnings per share and dividend per share are $3.20 and $2.20, respectively. Both are expected to grow at 8 percent. However, the firm's current P/E ratio of 31 seems high for this growth rate. The P/E ratio is expected to fali to 27 within five years. Compute the dividends over the next five years. (Do not round Intermediate calculations. Round your answers to 3 decimal places.) Years First year Second year Third year Fourth year Fth your Dividends $ 2.376 $ 2566 $ 2771 $ 2.993 $ 3.233 Compute the value of this stock in five years. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) 126,99 Stock price Calculate the present value of these cash flows using a 10 percent discount rate. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Prostalo 5 150.10
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started