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Suppose that a firms recent earnings per share and dividend per share are $2.75 and $1.60, respectively. Both are expected to grow at 9 percent.

Suppose that a firms recent earnings per share and dividend per share are $2.75 and $1.60, respectively. Both are expected to grow at 9 percent. However, the firms current P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19 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 an 11 percent discount rate

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