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Edit View History Bookmarks Develop Window Help ezto.mheducation.com e skills gap: Creating workforce These Are The Biggest Skills That New Graduates Lack Ko Question 4 (of 8) value: 10.00 points Problem 8-28 Stock Valuation and PE [LO2] 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 4 98.60$ 122.20$131.60 $148.23 Year 2Year3 High price Low price EPS 73.43 7.88 89.54 9.63 10.71116.75 12.10 70.22 Earmings are projected to grow at 4 percent over the next year What is your 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,stock priceS What is your 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 stock price References eBook & Resources Worksheet Problem 8-28 Stock Valuation and PE [L02)

Explanation / Answer

Average of High PE Ratio = $49.74019 / 4 = $12.43504

Average of Low PE Ratio = $34.82178 / 4 = $8.70544

EPS for the Next Year = $12.10 * 1.04 = $12.584

High Stock Price Over Next Year = Average of High PE Ratio * EPS for Next Year

= $12.43504 * $12.584

= $156.4825

Low Stock Price Over Next Year = Average of Low PE Ratio * EPS for Next Year

= $8.70544*$12.584

= $109.549

Particulars Year 1 Year 2 Year 3 Year 4 Total High Price($) (A) 98.60 122.20 131.60 148.23 Low Price($) (B) 73.43 89.54 70.22 116.75 EPS($) (C) 7.88 9.63 10.71 12.10 High PE Ratio (A/C) 12.51269 12.68951 12.28758 12.25041 49.74019 Low PE Ratio (B/C) 9.31852 9.29802 6.55648 9.64876 34.82178

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