Sully Corp. currently has an EPS of $3.60, and the benchmark PE for the company

Question

Sully Corp. currently has an EPS of $3.60, and the benchmark PE for the company is 35. Earnings are expected to grow at 6 percent per year.

What is your estimate of the current stock price? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the target stock price in one year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Assuming the company pays no dividends, what is the implied return on the company

Sully Corp. currently has an EPS of $3.60, and the benchmark PE for the company is 35. Earnings are expected to grow at 6 percent per year.

Explanation / Answer

Hi,

Part A:

Current Stock Price = EPS*PE Ratio = 3.60*35 = $126

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Part B:

Stock Price (Year 1) = 126*(1+6%) = $133.56

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Part C:

Implied Rate of Return = Growth Rate = 6%

Thanks.

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