Earnings are expected to grow at 13 percent for the next year. What is the PE ra

ID: 2712908 • Letter: E

Question

Earnings are expected to grow at 13 percent for the next year.

What is the PE ratio for each year? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

What is the average PE ratio? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Using the company's historical average PE as a benchmark, what is the target stock price in one year? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

You have found the following historical information for the Daniela Company:

Explanation / Answer

P/E ratio = price per share/ EPS

year

Stock price

$46.25

$60.22

$65.74

$63.30

EPS

$2.46

$2.52

$2.69

$2.68

P/E ratio

18.80

23.90

24.44

23.62

Average P/E ratio = Sum of P/E ratios / no. of years

= (18.80+29.9+24.44+23.62)/4

=90.76/4

= 22.69

EPS next year = EPSo x(1+g)

= 2.68 x (1+0.13)

= 3.0284

Price next year = EPS next year x Average P/E

= 3.0284 x 22.69

= 68.71