Question

11) Domergue Corp. currently has an EPS of $3.76, and the benchmark PE for the company is 21. Earnings are expected to grow at 5.1 percent per year. (4 pts.) a) What is your estimate of the current stock price? b) What is the target stock price in one year? c) Assuming the company pays no dividends, what is the implied return on the company’s stock over the next year?

Answer 1

Answer:

(a) 78.96

(b) 82.99

(c) 5.10

Explanation:

The current stock price can be calculated as follows

= 3.76 × 21

= 78.96

The target stock price in one year can be calculated as follows

= 3.76(1+5.1%)×21

= 3.76×(1+0.051)×21

= 3.76×1.051×21

= 82.99

The implied return on company's stock over one year can be calculated as follows

= 82.99-78.96/78.96

= 4.03/78.96

= 0.0510× 100

= 5.10