Suppose that a firm’s recent earnings per share and dividend per share are $3.30 and $2.30, respectively. Both are expected to grow at 9 percent. However, the firm’s current P/E ratio of 32 seems high for this growth rate. The P/E ratio is expected to fall to 28 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your final answer to 3 decimal places.) Dividends Years
First year $
Second year $
Third year $
Fourth year $
Fifth year $
Compute the value of this stock in five years. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Stock price $
Calculate the present value of these cash flows using an 11 percent discount rate. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Present value $