In practice, a common way to value a share of stock when a company pays...
70.2K
Verified Solution
Link Copied!
Question
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 $1.35. The dividends are expected to grow at 13 percent over the next five years. In five years, the estimated payout ratio is 35 percent and the benchmark PE ratio is 25. 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.) Target stock price What is the stock price today assuming a required return of 11.5 percent on this stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock price References eBook&Resources eBook: 8.1.Common Stock Valuation Check my work
Answer & Explanation
Solved by verified expert
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!
