In practice, a common way to value a share of stock when acompany pays dividends is to value the dividends over the next fiveyears or so, then find the “terminal†stock price using a benchmarkPE ratio. Suppose a company just paid a dividend of $2.10. Thedividends are expected to grow at 15 percent over the next fiveyears. In five years, the estimated payout ratio is 34 percent andthe benchmark PE ratio is 40. a. What is the target stock price infive years? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.) b. What is the stockprice today assuming a required return of 15 percent on this stock?(Do not round intermediate calculations and round your answer to 2decimal places, e.g., 32.16.)
