Question

LeBlanc Inc. currently has earnings of $10 per share, and investors expect that the earnings per share will grow by 3 percent per year. Furthermore, the mean PE ratio of all other firms in the same industry as LeBlanc Inc. is 15. LeBlanc is expected to pay a dividend of $3 per share over the next four years, and an investor in LeBlanc requires a return of 12 percent. What is the forecasted stock price of LeBlanc in four years, using the adjusted dividend discount model?

Answer 1

To calculate the price per share in the adjusted dividend discount model, calculate the present value of the future dividends and divide by the number of shares.

Step-by-step explanation:

To calculate the price per share in the adjusted dividend discount model, we need to calculate the present value of the future dividends.

The dividends expected to be paid out by LeBlanc over the next four years are $3 per share.

Using a discount rate of 12 percent, we can calculate the present values of these dividends.

The present value of the dividends is then divided by the number of shares to get the price per share.

Therefore, the forecasted stock price of LeBlanc in four years is approximately $23.86 per share.