Calculate the present value of cash flows

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Reference no: EM131010048

Suppose that a firm’s recent earnings per share and dividend per share are $3.50 and $2.50, respectively. Both are expected to grow at 7 percent. However, the firm’s current P/E ratio of 16 seems high for this growth rate. The P/E ratio is expected to fall to 12 within five years.

Compute the dividends over the next five years. (Do not round intermediate calculations and round your final answers to 3 decimal places.) Dividends Years

First year $

Second year $

Third year $

Fourth year $

Fifth year $

Compute the value of this stock in five years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Stock price $

Calculate the present value of these cash flows using a 9 percent discount rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Present value $

Reference no: EM131010048

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