Summers Corp. currently has an EPS of $3.50, and the benchmark PE for the compan

Question

Summers Corp. currently has an EPS of $3.50, and the benchmark PE for the company is 34. Earnings are expected to grow at 6 percent per year.

What is your estimate of the current stock price? (Do not round intermediate calculations and 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 company’s stock over the next year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

What is your estimate of the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Current stock price estimate = eps * benchmark pe = 3.5 * 34 = 119

Target stock price in 1 year = ( 1 + growth rate ) * current price = ( 1 + .06) * 119 = 126.14

Implied return over one year =[ ( target price - current price)/ current price ] * 100 = [(126.14 - 119)/119] *100 = 6%

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