Anticipates the dividiend annual compound growth rate

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Reference no: EM13724161

Joe investor has noted that the current price of MG Company is 61.50 and that its current P/E ratio is 15 and its current payout ratio for dividends is 40%. Based on his analysis of the next three years, Joe anticipates the dividiend annual compound growth rate to be 6% and the earnings growth rate to be 8%. He expects the stock to sell at a P/E ratio of 16 at the end of the third year. During the three year investment horizon, joe requires a 16% rate of return.

A) Based on joe's expectations, what is the fair price for the stock today?

b) Should joe buy the stock?

Reference no: EM13724161

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