Problem 7-26 Stock Valuation and PE [LO 2] Ssully Corp currently has an EPS of $
ID: 2557666 • Letter: P
Question
Problem 7-26 Stock Valuation and PE [LO 2] Ssully Corp currently has an EPS of $2 55, and the benchmark PE ratio for the company s 22 Eamings are expected to grow at 6.5 percent per year. What is your estimate of the current stock prike? (Do not round intermediate calculations and round your answer to 2 decimal places, e-g. 3216. Stock price What is the target stock price in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, eg., 32.16.) Stock price in one year Assuming the company pays no dividends, what is the implied returm on the company's stock over the next year? (Do not round intermediate calculation Implied returnExplanation / Answer
1: What is your estimate of the current stock price?
Solution: 51.7
Working
P = Benchmark PE ratio * EPS = 22*2.35 = 51.7
2) What is the target stock price in one year
Solution: 59.75
Working:
2.55 * (1 + 0.065) = 2.72
22 * 2.72 = 59.75
3) Assuming that the company pays no dividends, what is the implied return on the company's stock over the next year?
Solution: 15.57%
Working:
(59.75 - 51.70) / 51.70 = 15.57%