Tarzak Inc. has earnings of $10 per share, and investors expect that the earning

Question

Tarzak Inc. has earnings of $10 per share, and investors expect that the earnings per share will grow by 3 percent per year. Furthermore, the mean PE ratio of all other firms in the same industry as Tarzak is 15. Tarzak is expected to pay a dividend of $3 per share over the next four years, and an investor in Tarzak requires a return of 12 percent. The estimated stock price of Tarzak today should be $_______ using the adjusted dividend discount model. A) 116.41 B) 104.91 C) 161.15 D) none of these

Explanation / Answer

a

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