Suppose that a firmâs recent earnings per share and dividend per share are $3.10 and $2.50, respectively. Both are expected to grow at 7 percent. However, the firmâs current P/E ratio of 26 seems high for this growth rate. The P/E ratio is expected to fall to 22 within five years.
Compute the dividends over the next five years.
Compute the value of this stock price in five years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
|Stock price||$ ??????|
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||$ ??????|
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