Suppose That a Firm's Recent Earnings Per Share and Dividend

Multiple Choice

Suppose that a firm's recent earnings per share and dividend per share are $2.50 and $1.00, respectively. Both are expected to grow at 5 percent. However, the firm's current P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19 within five years. Compute a value for this stock. Assume a 10 percent required rate.

A) $36.19
B) $38.86
C) $40.31
D) $42.00