Find terminal stock price using benchmark p-e ratio

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Reference no: EM131916243

In practice, another way to value stock is to value the dividends over time and then find a “terminal” stock price using a benchmark P/E ratio. AC/DC Electric Co. just paid a $2.10/share annual dividend which is expected to grow at 12% over the next three years. In year-4, the estimated payout ratio is 60% and the benchmark P/E is 25.

a. What is the target stock price in three years?

b. What is today’s stock price assuming a 10% capital cost?

Reference no: EM131916243

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