Suppose that a firm's recent earnings per share and dividend per share are $2.55 and $1.40 respectively. Both are expected to grow at 11 percent.
However, the firm's current P/E ratio of 15 seems high for this growth rate. the P/E ratio is expected to fall to 11 within five years.
Compute the stock price in five years.
Calculate the present value of these cash flows using a 13 percent discount rate.