Davis, Inc., currently has an EPS of $1.40 and an earnings growth rate of 7 perc

Question

Davis, Inc., currently has an EPS of $1.40 and an earnings growth rate of 7 percent. If the benchmark PE ratio is 31, 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 $1.40 and an earnings growth rate of 7 percent. If the benchmark PE ratio is 31, 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

Hi,

Please find the answer as follows:

PE Ratio = Market Price Per Share/Earnings Per Share

31 = Market Price Per Share/1.40

Today's Market Price Per Share = 31*1.40 = 43.40

Market Price Per Share (after 5 Years) = 43.40*(1+.07)^5 = 60.87

Answer is 60.87

Thanks.

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