Question
Suppose that a firms recent earnings per share and dividend per share are $2.10 and $1.10, respectively. Both are expected to grow at 9 percent.
Suppose that a firms recent earnings per share and dividend per share are $2.10 and $1.10, respectively. Both are expected to grow at 9 percent. However, the firms current P/E ratio of 20 seems high for this growth rate. The P/E ratio is expected to fall to 16 within five years.
First year | ?$ |
Second year | ?$ |
Third year | ?$ |
Fourth year | ?$ |
Fifth year? | |
Compute the dividends over the next five years. (Do not round intermediate calculations. Round your final answer to 3 decimal places.) Compute the value of this stock in five years. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Stock Price=?
Calculate the present value of these cash flows using an 11 percent discount rate. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Present Value=?
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