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 Answer is not complete.
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 Answer is not complete.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
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![**Stock Valuation Exercise**
Suppose that a firm's recent earnings per share and dividend per share are $3.05 and $2.40, respectively. Both are expected to grow at 8 percent. However, the firm’s current P/E ratio of 25 seems high for this growth rate. The P/E ratio is expected to fall to 21 within five years.
### Dividends Over the Next Five Years
Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places.)
| Years | Dividends ($) |
|------------|---------------|
| First year | 2.592 |
| Second year| 2.799 |
| Third year | 3.023 |
| Fourth year| 3.265 |
| Fifth year | 3.526 |
*Answer is complete and correct.*
### Stock Price in Five Years
Compute the value of this stock price in five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
- **Stock price:** $94.08
*Answer is complete and correct.*
### Present Value Calculation
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:** [Answer completion needed]
*Answer is not complete.*](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcc951479-387e-4d42-916e-169b7920bd18%2F68e73bd1-8404-4e44-b5db-f10d58fb249b%2F1vk89wk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Stock Valuation Exercise**
Suppose that a firm's recent earnings per share and dividend per share are $3.05 and $2.40, respectively. Both are expected to grow at 8 percent. However, the firm’s current P/E ratio of 25 seems high for this growth rate. The P/E ratio is expected to fall to 21 within five years.
### Dividends Over the Next Five Years
Compute the dividends over the next five years. (Do not round intermediate calculations. Round your answers to 3 decimal places.)
| Years | Dividends ($) |
|------------|---------------|
| First year | 2.592 |
| Second year| 2.799 |
| Third year | 3.023 |
| Fourth year| 3.265 |
| Fifth year | 3.526 |
*Answer is complete and correct.*
### Stock Price in Five Years
Compute the value of this stock price in five years. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
- **Stock price:** $94.08
*Answer is complete and correct.*
### Present Value Calculation
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:** [Answer completion needed]
*Answer is not complete.*
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