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 stock price today?