New York Times Co. (NYT) recently earned a profit of $1.71 per share and has a P

Question

New York Times Co. (NYT) recently earned a profit of $1.71 per share and has a P/E ratio of 19.45. The dividend has been growing at a 6.25 percent rate over the past six years.

If this growth rate continues, what would be the stock price in six years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 22 in six years? (Round your answers to 2 decimal places.)

New York Times Co. (NYT) recently earned a profit of $1.71 per share and has a P/E ratio of 19.45. The dividend has been growing at a 6.25 percent rate over the past six years.

Explanation / Answer

a.Current price=PE ratio*EPS

=(19.45*1.71)=$33.2595

Hence Stock price after 6 years=Current price(1+Growth rate)^6

=33.2595(1.0625)^6=$47.85(APPROX).

b.

Current price=(1.71*22)=37.62

Hence Stock price after 6 years=Current price(1+Growth rate)^6

=37.62(1.0625)^6=$54.12(Approx)

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