P/E Model and Cash Flow Valuation Suppose That a Firm's

Multiple Choice

P/E Model and Cash Flow Valuation Suppose that a firm's recent earnings per share and dividends per share are $2.50 and $1.00,respectively.Both are expected to grow at 10 percent.However,the firm's current P/E ratio of 22 seems high for this growth rate.The P/E ratio is expected to fall to 18 within five years.Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years.Then discount these cash flows using a 14 percent required rate.

A) $37.51
B) $37.64
C) $42.14
D) $72.47