Suppose that a firm’s recent earnings per share and dividend per share are $3.50 and $2.50, respectively. Both are expected to grow at 7 percent. However, the firm’s current P/E ratio of 16 seems high for this growth rate. The P/E ratio is expected to fall to 12 within five years.

Compute the dividends over the next five years. (Do not round intermediate calculations and round your final answers to 3 decimal places.)

Dividends Years

First year $2.675

Second year $2.862

Third year $3.063

Fourth year $3.277

Fifth year $3.506

Compute the value of this stock in five years. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Stock price $58.91

Calculate the present value of these cash flows using a 9 percent discount rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Present value $