The required rate of return is 12% and the growth rate is 7%. The expected dividend at the end of 2020 is $2.15. 

a) Compute the present value of Post's stock price with the appropriate assumptions. 

b) If the required rate of return and the dividend remain the same, but the growth rate increases up to 8 percent, what will happen with the stock price? Explain the reason for the change. 

c) If the dividend and the growth rate remain the same, but the required rate of return increases to 14%, what will happen to the stock price? Explain the reason for the change. 

 

The average high and low P/E for Post Inc. is 15.25 and 10. 25, respectively. 

a) Assume that analysts determine that Post Inc.'s P/E ratio is 2020 should be 7 percent above the average high Post Inc. P/E ratio for the last 10 years. If the projected earnings per share are $2.15 for 2020, what would be the stock price? 

b) Assume that analysts determine that Post Inc.'s P/E ratio is 2020 should be 15 percent below the average low Post Inc. P/E for the last 10 years. What would the stock price be based on the anticipated earnings per share of $1.50?