Suppose that a firm's recent earnings per share and dividend per share are $4.00 and $3.00,...

  

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Suppose that a firm's recent earnings per share and dividend per share are $4.00 and $3.00, respectively. Both are expected to grow at 8 percent. However, the firm's current P/E ratio of 21 seems high for this growth rate. The P/E ratio is expected to fall to 17 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places.) Dividends Years First year $ Second year $ SA Third year $ Fourth year $ Fifth year $ 3.240 3.499 Stock price 3.799 4.081 4.418 Compute the value of this stock in five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Calculate the present value of these cash flows using a 10 percent discount rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value Suppose that a firm's recent earnings per share and dividend per share are $4.00 and $3.00, respectively. Both are expected to grow at 8 percent. However, the firm's current P/E ratio of 21 seems high for this growth rate. The P/E ratio is expected to fall to 17 within five years. Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places.) Dividends Years First year $ Second year $ SA Third year $ Fourth year $ Fifth year $ 3.240 3.499 Stock price 3.799 4.081 4.418 Compute the value of this stock in five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Calculate the present value of these cash flows using a 10 percent discount rate. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value

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Dividends over the next 5 years Dividend Year Workings First year 3240 3 108 Second year 3499 3 1082 ... View the full answer