2) You are provided an estimate of the following information for stock XYZ. You expect to sell the stock one year from now for $26 and expect one more dividend payment before you sell.
How much are the dividend payment and stock worth today?
Earnings per share: this year $5.00
Dividends per share: this year $1.50
Estimated earnings per share: next year $6.25
Required rate of return 10%
Expected sales price in one year $26.00
The dividend payout ratio is Dividends per share / Earnings per share = 1.5/5 = 0.3
The expected ...
The solution computes the value of the stock today considering dividend payments.