Compute the stock price in five years

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Reference no: EM132008454

Suppose that a firm's recent earnings per share and dividend per share are $2.55 and $1.40 respectively. Both are expected to grow at 11 percent.

However, the firm's current P/E ratio of 15 seems high for this growth rate. the P/E ratio is expected to fall to 11 within five years.

Compute the stock price in five years.

Calculate the present value of these cash flows using a 13 percent discount rate.

Reference no: EM132008454

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