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exis [7]
3 years ago
5

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 y

ears or so, then find the "terminal" stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.17. The dividends are expected to grow at 12 percent over the next five years. The company has a payout ratio of 40 percent and a benchmark PE of 19. The required return is 12 percent. What is the target stock price in five years?
What is the stock price today?
Business
1 answer:
svlad2 [7]3 years ago
3 0

Answer:

Stock Price in 5 years: $97.94. Stock Price Today: $55.575

Explanation:

A pay-out ratio is computed by dividing dividends per share over earnings per share. Meanwhile, PE or Price-Earnings Ratio is computed by dividing the market value of stocks over earnings per share. Thus, using the pay-out ratio formula, the earnings per share is 2.925 ($1.17/40%) and using the PE ratio formula, the market price of stocks today is $55.575 (19 x 2.925). After 5 years, multiplying 1.17 and 12% rate raised to the 5th power, the dividend will amount to $5.1548. Using pay-out ratio, earnings per share is 5.1548 ($2.0619/40%) and the market price of stock after 5 years is $97.94 ($5.1548 x 19).

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Answer:

S>I

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Y = C + I + G + (X - M) \\Y = C + I + G + NX

National saving is the income of the nation left after paying for government purchases and consumption. So,

S = Y - C - G

Y = C + S + G \\

Plugging this back into the equation for GDP, we get

Y = C + I + G + NX \\C + S + G = C + I + G + NX \\S = I + NX \\S = I + NX\\S = I + NCO

where, NCO is Net capital outflow.

When there is balanced trade, we have

X = M \\i.e \\NX = 0 \\So, S = I

When there is trade surplus, we have

X>M \\NX > 0 \\NCO > 0 \\Y > C + I + G

Thus,

S > I

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Answer:

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