If you look at stock prices over any year, you will find a high and low stock pr
ID: 2773088 • Letter: I
Question
If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company over the past four years:
What is your high target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
What is your low target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Year 1 Year 2 Year 3 Year 4 High price $ 99.20 $ 122.80 $ 132.20 $ 148.83 Low price 74.03 90.14 70.82 117.35 EPS 8.48 10.23 11.31 12.70Explanation / Answer
Answer:
Calculation of bechmark PE:
Next year's projected EPS = $12.7(1+0.04) = $13.208
High target stock price = High benchmark PE*Next year's EPS = $13.208 * 11.78 = $155.59
High target stock price = Low benchmark PE*Next year's EPS = $13.208 * 7.84 = $103.55
Year 1 Year 2 Year 3 Year 4 Average PE High price 99.2 122.8 132.2 148.83 Low price 74.03 90.14 70.82 117.35 EPS 8.48 10.23 11.31 12.7 High PE (High Price/EPS) 11.70 12.00 11.69 11.72 11.78 Low PE (Low Price/EPS) 6.33 7.51 6.06 10.01 7.48Related Questions
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