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Suppose that a firm’s recent earnings per share and dividend per share are $2.80 and $1.90, respectively. Both are expected to grow at 11 percent. However, the firm’s current P/E ratio of 20 seems high for this growth rate. The P/E ratio is expected to fall to 16 within five years. |
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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 | $ [removed] |
| Second year | $ [removed] |
| Third year | $ [removed] |
| Fourth year | $ [removed] |
| Fifth year | $ [removed] |
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Compute the value of this stock price in five years. (Do not round intermediate calculations and round your final answer to 2 decimal places.) |
| Stock price | $ [removed] |
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Calculate the present value of these cash flows using a 13 percent discount rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.) |
| Present value | $ [removed] |
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