Find terminal stock price using benchmark pe ratio

Assignment Help Financial Management

Reference no: EM131130889

In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.20. The dividends are expected to grow at 15 percent over the next five years. In five years, the estimated payout ratio is 35 percent and the benchmark PE ratio is 22. After five years, the earnings are expected to grow at 7 percent per year. The required return is 11 percent. Required: What are the projected dividends for each of the next five years? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g.,32.16).) Dividend Year 1 $ 1.33 Year 2 $ 1.48 Year 3 $ 1.64 Year 4 $ 1.82 Year 5 $ 2.02 What is the EPS in five years? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) EPS in 5 years $ 5.77 What is the target stock price in five years? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Stock price in 5 years $ 126.94 What is the stock price today? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Stock price today $ 82.15

What is in bold were my answers but I got them wrong not sure why?

Reference no: EM131130889

Questions Cloud

City buses arrive at a certain street corner : City buses arrive at a certain street corner, between 5 a.m. and 11 p.m., according to a Poisson process with rate λ = 4 per hour. Let T1 be the waiting time, in minutes, until the first bus (after 5 a.m.), and let M be the total number of buses be..

What do the following two quotes have in common : My wages are going up 5 percent a year. If only inflation weren t 5 percent a year, I would be rich.

What is the rate of return on this investment : What is the rate of return on this investment? Assuming the investor wants to earn at least 12 percent, is this investment an attractive one?

The traffic on the service road of a highway : A truck driver is waiting to join the traffic on the service road of a highway. The truck driver blocks the service road for four seconds when he joins the traffic.

Find terminal stock price using benchmark pe ratio : In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1...

What is the difference between explicit and implicit cost : What is the difference between explicit and implicit cost? Explain your answers. How would we determine if a cost is a fixed cost or a variable cost?

Are you over benefited or underbenefited in the relationship : Are you over benefited or underbenefited in the relationship or do feel you are equals? - What behaviors do you use to maintain your relationship?

Specific activities organization can engage in to accomplish : Suppose firm XYZ has AR (Accounts Receivable) = 500, Sales = 3000, Inventory = 300, Cost of Goods Sold = 1200, and AP (Accounts Payable) = 100. How much cash does firm XYZ save if it reduces its Days Sales Outstanding by 10 days? What are specific ac..

A radioactive source according to a poisson process : (b) Knowing that during a given hour two particles were emitted, what is the probability that one of them was emitted during the first half-hour and the other during the second half-hour of the hour in question?

User Account

All Pages