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Suppose that a firm's recent earnings per share and dividend per share are $3.15 and $2.60, respectively. Both are expected to grow at 6 percent. However, the firm's current P/E ration of 27 seems high for this growth rate. The P/E ratio is expected to fall to 23 within five years. Compute the dividends over the next five years. Compute the value of this stock price in five years. Calculate the present value of these cash flows using an 8 percent discount rate.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91549241

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