Suppose that a firm’s recent earnings per share and dividend per share are $2.20 and $1.20, respectively. Both are expected to grow at 10 percent. However, the firm’s current P/E ratio of 21 seems high for this growth rate. The P/E ratio is expected to fall to 17 within five years.
Compute the dividends over the next five years. (Do not round intermediate calculations and round your final answers 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 and round your final answer to 2 decimal places.) Stock price $
Calculate the price of this stock today, including all six cash flows at discount rate of 12 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Present value $