What would you estimate to be a fair value for stock today

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Reference no: EM131924259

Suppose a company has a leading P/E ratio of 8 while the industry that this firm is in has average leading P/E ratio of 12. Last year's earnings were $2.00 per share, next year's earnings are estimated to be $2.50 per share, the earnings for two years from now are estimated to be $3.00 per share, and the earnings three years from now are estimated to $3.50 per share. The company expects to have a dividend payout ratio of40% in the fut If you anticipate that the P/E ratio for this company will gradually increase over the nex years up to the industry average, what would you estimate to be a fair value for this stock today? Assume the required return on equity is 12% per year.

Reference no: EM131924259

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