Suppose the discount rate for IBM stock is $16\%.$ The IBM's earnings per share $($EPS$)$ is forecasted to be $$16$ at the end of year $1,$ and expected to grow at a rate of $12\%$ during year $1-5.$ At the end of year $6,$ the EPS is forecasted to be $$32.$ Since year $6,$ the IBM is forecasted to keep a return on equity $($ROE$)$ ratio of $15\%$ to forever. The payout ratio of IBM is $20\%$ during year $1-5,$ and $40\%$ since year $6.$

What is the dividend $($per share$)$ at the end of year $1?$

What is the total present value for dividends $($per share$)$ during year $1-5?$

What is the dividend growth rate since year $6?$

What is the present value $($t$=0)$ of dividends since year $6$ to forever?

What is the estimated stock price?

Answer rating: 100% (QA)

IBM Stock Valuation using Dividend Discount Model DDM We can use a Dividend Discount Model DDM with a twostage growth rate to estimate the stock price ... View the full answer