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What is the price earnings ratio

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Question - Two-Stage Dividend Growth Model

a. Blaine Co. just paid a dividend of $3.85 per share. The company will increase its dividend by 15 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on Blaine stock is 10 percent, what will a share of stock sell for today?

b. If dividends paid represent 30 percent of annual earnings, what is the Price Earnings ratio, based on your price from a.?

c. If the industry Price Earnings ratio is 120% of your answer in b., is Blaine, based on your answer from a., overvalued or undervalued?

Reference no: EM132869443

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