Davis, Inc., currently has an EPS of $2.20 and an earnings growth rate of 5 perc

Question

Davis, Inc., currently has an EPS of $2.20 and an earnings growth rate of 5 percent. If the benchmark PE ratio is 27, what is the target share price five years from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Davis, Inc., currently has an EPS of $2.20 and an earnings growth rate of 5 percent. If the benchmark PE ratio is 27, what is the target share price five years from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Target EPS after 5 years=1.05^5*2.2

=$2.8078

Target share price=EPS*P/E ratio

=2.8078*27

=$75.81

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