In practice, a common way to value a share of stock when a company pays...
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Finance
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 15 percent over the next five years. The company has a payout ratio of 35 percent and a benchmark PE of 22. The required return is 11 percent.
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.)
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