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Given the following information on US Tobacco, determine whether the company’s stock is attractively priced based on...

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Finance

Given the following information on US Tobacco, determine whetherthe company’s stock is attractively

priced based on the two valuation methods (DVM, P/E).

US Tobacco S&P 500

Recent price $27.00    $ 290

Anticipated next year’s dividend $1.20    $ 8.75

Growth in dividends & earnings 10.0%    7.0%

Required return 13.0%

Estimated next year’s EPS $2.40 $16.50

P/E ratio based on next year’s earnings 11.3 17.6

Dividend Yield 4.4% 3.0%

Answer & Explanation Solved by verified expert
3.8 Ratings (551 Votes)
Dividend Valuation Method The stock price with the use of dividend valuation method is arrived as below Stock Price Dividend Next Year1Growth RateRequired Return Growth    See Answer
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Transcribed Image Text

Given the following information on US Tobacco, determine whetherthe company’s stock is attractivelypriced based on the two valuation methods (DVM, P/E).US Tobacco S&P 500Recent price $27.00    $ 290Anticipated next year’s dividend $1.20    $ 8.75Growth in dividends & earnings 10.0%    7.0%Required return 13.0%Estimated next year’s EPS $2.40 $16.50P/E ratio based on next year’s earnings 11.3 17.6Dividend Yield 4.4% 3.0%

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