Plush Pilots, Inc., has balance sheet equity of $5.2 million. At the same time,
ID: 2641662 • Letter: P
Question
Plush Pilots, Inc., has balance sheet equity of $5.2 million. At the same time, the income statement shows net income of $743,600. The company paid dividends of $423,852 and has 130,000 shares of stock outstanding. If the benchmark PE ratio is 21, 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))
Plush Pilots, Inc., has balance sheet equity of $5.2 million. At the same time, the income statement shows net income of $743,600. The company paid dividends of $423,852 and has 130,000 shares of stock outstanding. If the benchmark PE ratio is 21, 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))
Explanation / Answer
Plush Pilots, Inc., has balance sheet equity of $5.2 million. At the same time, the income statement shows net income of $743,600. The company paid dividends of $423,852 and has 130,000 shares of stock outstanding. If the benchmark PE ratio is 21, 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))
Earning Per Share = Net Income/Common Shares Outstanding
Earning Per Share = 743600/130000
Earning Per Share = 5.72
Current Stock Price = Earning Per Share*PE ratio
Current Stock Price = 5.72*21
Current Stock Price = $ 120.12
Growth rate = ROE * Retention Ratio
ROE = Net Income / Total Equity
ROE =743600/5200000
ROE = 14.3 %
Retention Ratio = (Net income - Dividend )/ Net Income
Retention Ratio = (743600-423852)/743600
Retention Ratio = 43%
Growth rate = 14.3*43%
Growth rate = 6.149%
Target Stock Price in 1 year = Current Stock Price* ( 1+ Growth rate)
Target Stock Price in 1 year = 120.12*(1+6.149%)
Target Stock Price in 1 year = $ 127.51
Target stock price $ 127.51