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Suppose that a firm's recent earnings per share and dividend per share are $3.00 and $2.30, respectively. Both are expected to grow at 10 percent.

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Suppose that a firm's recent earnings per share and dividend per share are $3.00 and $2.30, respectively. Both are expected to grow at 10 percent. However, the firm's current P/E ratio of 24 seems high for this growth rate. The P/E ratio is expected to fall to 20 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 12 percent discount rate

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