Find terminal stock price using benchmark PE ratio

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Reference no: EM13877793

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 $1.40. The dividends are expected to grow at 14 percent over the next five years. In five years, the estimated payout ratio is 40 percent and the benchmark PE ratio is 26.

What is the target stock price in five years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Target stock price $

What is the stock price today assuming a required return of 12 percent on this stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Stock price $

Reference no: EM13877793

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