Heath's company is currently producing 50 units of output. the price of the good is $5 per unit. total fixed costs are $30 and t
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Answer:
D0 1.50
D1 1.60
D2 1.78
D3 1.94
D4 2.12
D5 2.31
Price of the stock after 5-year $ 77
PV $ 81.75
Explanation:
Earning per share 2.5
Dividend per share 1.5
grow ratio 9%
P/E ratio 24
within 5 year is expected to fall to 20
We solve for the dividend by multiplying the dividends by the grow rate of 9%
We solve for the earning after 5 years:
Principal 2.50
time 5.00
rate 0.09000
Amount 3.85
Then we multiply by 20 to get the value of the stock:
$ 3.85 x 20 = $ 77
We solve the horizon value:
PV $ 81.75