In practice, a common way to value a share of stock when a company pays...
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Accounting
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 $1.28. The dividends are expected to grow at 13 percent over the next five years. The company has a payout ratio of 35 percent and a benchmark PE of 23. The required return is 11 percent. a 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? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Target price in five years b. Stock price today
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