In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next 5 years or so, then find the terminal stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.41. The dividends are expected to grow at 13% over the next 5 years. In the 5 years, the estimated payout ratio is 30% and the benchmark PE ratio is 19. What is the target stock price in 5 years? What is the stock price today assuming a required return of 11% on this stock?

In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next 5 years or so, then find the terminal stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.41. The dividends are expected to grow at 13% over the next 5 years. In the 5 years, the estimated payout ratio is 30% and the benchmark PE ratio is 19. What is the target stock price in 5 years? What is the stock price today assuming a required return of 11% on this stock?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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