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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 firm’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 firm’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

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