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

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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 ...
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