Sully Corp. currently has an EPS of $3.10, and the benchmark PE for the company

Question

Sully Corp. currently has an EPS of $3.10, and the benchmark PE for the company is 30. Earnings are expected to grow at 6 percent per year.

What is your estimate of the current stock price? (Round your answer to 2 decimal places. (e.g., 32.16))

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))

Assuming the company pays no dividends, what is the implied return on the companys stock over the next year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What is your estimate of the current stock price? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Current Stock Price = PE Ratio*Earnings Per Share = 30*3.10 = $93

Answer for Part A is $93

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Part B:

Stock Price after 1 Year = Current Stock Price*(1+Growth Rate) = 93*(1+.06) = $98.58

Answer for Part B is $98.58

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Part C:

Implied Return = (Stock Price after Year 1 - Current Stock Price)/Current Stock Price = (98.58 - 93)/93 = 6%

Answer for Part C is 6%.

Thanks.

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