If you look at stock
prices over any year, you will find a high and low stock price for
the year. Instead of a single benchmark PE ratio, we now have a
high and low PE ratio for each year. We can use these ratios to
calculate a high and a low stock price for the next year. Suppose
we have the following information on a particular company:
Year 1 | Year 2 | Year 3 | Year 4 | |||||||||||||
High price | $ | 87.06 | $ | 98.34 | $ | 119.70 | $ | 131.53 | ||||||||
Low price | 69.28 | 81.90 | 81.58 | 108.56 | ||||||||||||
EPS | 6.51 | 8.93 | 8.59 | 10.18 | ||||||||||||
Earnings are projected to grow at 8.5 percent over the next
year.
What are the high and low PE ratios for each year? (Do not
round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
High PE | Low PE | |
Year 1 | ||
Year 2 | ||
Year 3 | ||
Year 4 | ||
What are the average high and low PE ratios over this period?
(Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
High PE | Low PE | |
Average | ||
What is the high target stock price over the next year? (Do
not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
High target price
$
What is the low target stock price over the next year? (Do
not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
Low target price
$
a)
Year 1 | Year 2 | Year 3 | Year 4 | |
High price | 87.06 | 98.34 | 119.7 | 131.53 |
Low price | 69.28 | 81.9 | 81.58 | 108.56 |
EPS | 6.51 | 8.93 | 8.59 | 10.18 |
High PE | 13.37 | 11.01 | 13.93 | 12.92 |
Low PE | 10.64 | 9.17 | 9.50 | 10.66 |
b)
Year 1 | Year 2 | Year 3 | Year 4 | Average | |
High PE | 13.37 | 11.01 | 13.93 | 12.92 | 12.81 |
Low PE | 10.64 | 9.17 | 9.50 | 10.66 | 9.99 |
c)
EPS 1 = EPS 0 (1+ g)
= 10.18 (1 + 0.085)
= 11.045
High target stock price over the next year = Average High PE * EPS 1
= 12.81 * 11.045
= 141.49
d) Low target stock price over the next year = Average Low PE * EPS 1
= 9.99 * 11.045
= 110. 34
If you look at stock prices over any year, you will find a high and low...
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: High price Low price EPS Year 1 Year 2 $88.51 $101.69 70.23...
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: Year 1 Year 2 Year 3 Year 4 High price $...
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: Year 4 $134.29 High price Low price EPS Year 1 $88.22 70.04...
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company over the past four years: Year 1 Year 2 Year 3 Year...
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company: High price Low price EPS Year 1 $48.60 37.25 2.02 Year 2...
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the "terminal" stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.19. The dividends are expected to grow at 14 percent over the next five years. The company has a payout ratio of 30 percent and a benchmark PE of 21. The required return...
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the "terminal" stock price using a benchmark PE o. Suppose a company just paid a dividend of $1.17. The dividends are expected to grow at 12 percent over the next five years. The company has a payout ratio of 40 percent and a benchmark PE of 19. The required return...
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.21. The dividends are expected to grow at 16 percent over the next five years. The company has a payout ratio of 40 percent and a benchmark PE of 23. The required return...
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the "terminal" stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.18. The dividends are expected to grow at 13 percent over the next five years. The company has a payout ratio of 45 percent and a benchmark PE of 20. The required return...
In practice, a common way to value a share of stock when a company pays dividends is to value the dividends over the next five years or so, then find the “terminal” stock price using a benchmark PE ratio. Suppose a company just paid a dividend of $1.35. The dividends are expected to grow at 13 percent over the next five years. In five years, the estimated payout ratio is 35 percent and the benchmark PE ratio is 25. ...