Ramsay Corp. currently has an EPS of $3.90, and the benchmark PE for the company
ID: 2764083 • Letter: R
Question
Ramsay Corp. currently has an EPS of $3.90, and the benchmark PE for the company is 38. Earnings are expected to grow at 10 percent per year. a. What is your estimate of the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16)) Current stock price $ b. 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)) Target stock price $ c. Assuming the company pays no dividends, what is the implied return on the company’s stock over the next year? (Do not round intermediate calculations and round your final answer to the nearest whole number. (e.g., 32)) Implied return of stock %
Explanation / Answer
Answer:a P/E Multiple = Price of stock / Earnings Per Share
M = P / E
38= P / $3.90
38 x $3.90 = P
$148.20 = P
Answer:b Adjust the Earnings Per Share by an increase of 10%, then solve for P again
Earnings next year = $3.90 x (1+0.10) = $4.29
38 = P / $4.29
38 x $4.29 = P
$163.02 = P
Answer;c Percent change = [ (New/Old)-1 ] x 100
Percent change = [ ($163.02 /$148.20) -1 ] x 100
Percent change = 10%
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