{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

KIC000098

# KIC000098 - INA Using the Adjusted Dividend Discount Model...

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: INA Using the Adjusted Dividend Discount Model Parker Corp. currently has earnings of \$10 per share. Investors expect that the EPS will growth by 3 percent per year and expect to sell the stock in four years. What is the EPS in four years? Forecastedoarninnsinnyem =E(1+Gi" =S10x(1.03)‘ =\$11.2E Using the Adjusted Dividend Discount Model (cont’d) Other ﬁrms in Parkefs industry have a mean PE ratio of 7. What is the estimated stock price in four years? Stock price in 4 years = (Earnings in 4 years) x (PE ratio of industry) Using the Adjusted Dividend Discount Model (cont’d) Parker is expected to pay a dividend of \$2 per share over the next four years. Investors require a return of 13% on their investment. Based on this information, what is a fair value of the stock according to the adjusted dividend discount model? M]: s2 _sz \$2 575.32 (1.1a)’+(1,13)’ ‘ (1.13)a Wmar +(1.1:5)‘ =\$5429 ...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern