Early in 2013, Mathew is analyzing shares of Janeff Corp. He expects the following dividends per share (end of year).
2013 $1.00
2014 $1.25
2015 $1.50
He expects 2015 earnings per share to be $4.50 and Janeff's P/E ratio to be 20. His required rate of return for this stock is 12%. He should pay no more than

Question

Quizplus · Accepted Answer

The price in 2015 can be estimated using the P/E ratio: $4.50 * 20 = $90. The present value of dividends and the price in 2015, discounted at 12%, is $67.02.

Early in 2013, Mathew Is Analyzing Shares of Janeff Corp