Suppose that a firm’s recent earnings per share and dividend per share are $2.50 and $1.30,...

50.1K

Verified Solution

Question

Finance

Suppose that a firm’s recent earnings per share and dividend pershare are $2.50 and $1.30, respectively. Both are expected to growat 8 percent. However, the firm’s current P/E ratio of 22 seemshigh for this growth rate. The P/E ratio is expected to fall to 18within five years.
Compute the dividends over the next five years. (Do notround intermediate calculations. Round your answers to 3 decimalplaces.)
First year $
Second year $
Third year $
Fourth year $
Fifth year $
Compute the value of this stock in five years. (Do notround intermediate calculations. Round your answer to 2 decimalplaces.)
Find Stock price:
Calculate the present value of these cash flows using a 10percent discount rate. (Do not round intermediatecalculations. Round your answer to 2 decimal places.)
Find Present value:
Please answer all the parts correctly. Thanks in advance!

Answer & Explanation Solved by verified expert

3.7 Ratings (329 Votes)

YearDividend1140421516316384176951910Value of See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Suppose that a firm’s recent earnings per share and dividend pershare are $2.50 and $1.30, respectively. Both are expected to growat 8 percent. However, the firm’s current P/E ratio of 22 seemshigh for this growth rate. The P/E ratio is expected to fall to 18within five years.Compute the dividends over the next five years. (Do notround intermediate calculations. Round your answers to 3 decimalplaces.)First year $Second year $Third year $Fourth year $Fifth year $Compute the value of this stock in five years. (Do notround intermediate calculations. Round your answer to 2 decimalplaces.)Find Stock price:Calculate the present value of these cash flows using a 10percent discount rate. (Do not round intermediatecalculations. Round your answer to 2 decimal places.)Find Present value:Please answer all the parts correctly. Thanks in advance!