Plush Pilots, Inc., has balance sheet equity of $6.2 million. At the same time,
ID: 2641670 • Letter: P
Question
Plush Pilots, Inc., has balance sheet equity of $6.2 million. At the same time, the income statement shows net income of $948,600. The company paid dividends of $493,272 and has 100,000 shares of stock outstanding. If the benchmark PE ratio is 26, 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 $6.2 million. At the same time, the income statement shows net income of $948,600. The company paid dividends of $493,272 and has 100,000 shares of stock outstanding. If the benchmark PE ratio is 26, 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
ROE = 948600 / 6200000 = 15.3%
Retention ratio = 1 - (493272 / 948600) = 0.48
Growth rate = 15.3% * 0.48 = 7.34%
Projected EPS for next year = 948600 * 1.0734 / 100000 = 10.18
Target stock price = Projected EPS * PE ratio
= 10.18 * 26
= 264.68