Suppose that a firm s recent earnings per share and dividend per share are $ 3 .
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Question:
Suppose that a firms recent earnings per share and dividend per share are $ and $ respectively. Both are expected to grow at percent. However, the firms current PE ratio of seems high for this growth rate. The PE ratio is expected to fall to within five years.
Compute the dividends over the next five years.
Compute the value of this stock in five years.
Calculate the present value of these cash flows using a percent discount rate.
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