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 $1.20. The dividends are expected to grow at 10 percent over the next five years. In five years, the estimated payout ratio is 25 percent and the benchmark PE ratio is 22. a. What is the target stock price in five years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the stock price today assuming a required return of 10 percent on this stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) m. Stock price in 5 years . Stock price today I

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 $1.20. The dividends are expected to grow at 10 percent over the next five years. In five years, the estimated payout ratio is 25 percent and the benchmark PE ratio is 22. a. What is the target stock price in five years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the stock price today assuming a required return of 10 percent on this stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) m. Stock price in 5 years . Stock price today I

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Description: In practice, a common way to value a share of stock when a company pays dividends isto value the dividends over the next five years or so, then find the terminal stock priceusing a benchmark PE ratio. Suppose a company just paid a dividend of $1.20.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 13P

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