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13.5.1 - (PE = MKP/EPS If you expect the current earnings...

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NAME: . STUDENT #: . Class Test # 4 February 6, 2006 You are considering buying a stock that pays a $1.50 dividend per share at the end of each year. Five years from now you believe that you could sell the stock for $45.00. You require an 8% rate of return. QUESTION #1: Would you buy the stock today for $30.00? Show calculations QUESTION #2
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Unformatted text preview: (PE = MKP/EPS) If you expect the current earnings per share of $1.00 to grow at a rate of 10% for five years and in 5 years trade at a price earnings ratio of 15 times earnings. It would pay the same $1.50 dividend per share at the end of each year for five years. If you required the same 8% return would you buy the stock?...
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