Find the target stock price in five years

Reference no: EM132048037

Question: 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 $1.33. The dividends are expected to grow at 18 percent over the next five years. The company has a payout ratio of 40 percent and a benchmark PE of 21. The required return is 12 percent. What is the target stock price in five years? What is the stock price today?

Reference no: EM132048037

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