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# Suppose that a firmâ s recent earnings per share and dividend per share are \$3 10 and \$2 50 respectively Both are expected to grow at 7 percent However the firmâs current PE ratio of 26 seems

Suppose that a firmâs recent earnings per share and dividend per share are \$3.10 and \$2.50, respectively. Both are expected to grow at 7 percent. However, the firmâs current P/E ratio of 26 seems high for this growth rate. The P/E ratio is expected to fall to 22 within five years.

Compute the dividends over the next five years.

 Dividends Years First year \$ Second year \$ Third year \$ Fourth year \$ Fifth year \$
 Compute the value of this stock price in five years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
 Stock price \$ ??????

 Calculate the present value of these cash flows using a 9 percent discount rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.
 Present value \$ ??????

Aug 12 2020 View more View Less Subscribe To Get Solution