Suppose that a firm’s recent earnings per share and dividend per share are $2.50 and $1.30, respectively. Both are expected to grow at 8 percent. However, the firm’s current P/E ratio of 22 seems high for this growth rate. The P/E ratio is expected to fall to 18 within five years. Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years. Then discount these cash flows using a 10 percent required rate.
Answer to relevant QuestionsSuppose that a firm’s recent earnings per share and dividend per share are $2.75 and $1.60, respectively. Both are expected to grow at 9 percent. However, the firm’s current P/E ratio of 23 seems high for this growth ...Financial analysts forecast Safeco Corp.’s (SAF) growth rate for the future to be 8 percent. Safeco’s recent dividend was $0.88. What is the value of Safeco stock when the required return is 12 percent? How do we define risk in this chapter and how do we measure it? You own only two stocks in your portfolio but want to add more. When you add a third stock, the total risk of your portfolio declines. When you add a tenth stock to the portfolio, the total risk declines. Adding which ...The past five monthly returns for PG&E are -3.17 percent, 3.88 percent, 3.77 percent, 6.47 percent, and 3.58 percent. What is the average monthly return?
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