In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.26. The dividends are expected to grow at 11 percent over the next five years. The company has a payout ratio of 45 percent and a benchmark PE of 21. The required return is 13 percent.
What is the target stock price in five years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Target price in 5 years $
What is the stock price today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Stock price today $