value 7.00 points In practice, a common way to value a share of stock when a com
ID: 2750596 • Letter: V
Question
value 7.00 points 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 $1.23. The dividends are expected to grow at 18 percent over the next five years. In five years, the estimated payout ratio is 30 percent and the benchmark PE ratio is 18 After five years, the earnings are expected to grow at 7 percent per year. The required return is 14 percent. Required: What are the projected dividends for each of the next five years? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g.,32.16).) Dividend Year 1 Year 2 Year 3 Year 4 Year 5 What is the EPS in five years? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) EPS in 5 years What is the target stock price in five years? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Stock price in 5 years What is the stock price today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Stock price today References eBook & Resources Worksheet Difficulty: Intermediate Learning Objective: 07-02 Identify the different ways corporate directors are elected to office Check my workExplanation / Answer
Thus,
D10= Dividend at the end of 10th Year
Ke= Return on Stock
g= Growth rate in dividend
Price of stock 9 Years from today = D10/Ke-g = 15.75/.13-.05 = 196.88 Current Price Price at the end of 9th year = 196.88 Discounting factor for 9th Year on 13% return on Stock = 0.33 Present Value of Stock = 65.54Related Questions
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