In practice, a common way to value a share of stock when a company pays dividends is

Question:

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 $1.15. The dividends are expected to grow at 20 percent over the next five years. In five years, the estimated payout ratio is 40 percent and the benchmark PE ratio is 21. What is the target stock price in five years?

What is the stock price today assuming a required return of 12 percent on this stock?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...