Chapter 9, Problem 26QAP

A

Summary Introduction

Adequate information:

  $\begin{array}{l}\text{EPS}=\$3.47\\ \text{Benchmark PE = }19\\ \text{Earnings expected growth rate = 6\% per year}\end{array}$

To compute: Estimate the current stock price.

Introduction: Current stock price refers to the present selling value of a share.

B

Summary Introduction

Adequate information:

  $\begin{array}{l}\text{Current Stock Price }=\$65.93\\ \text{Earnings expected growth rate = 6\% per year}\end{array}$

To compute: Target Stock Price in one year.

Introduction: A target price is an estimate of the future value of a stock.

C

Summary Introduction

Adequate information:

  $\begin{array}{l}\text{EPS}\text{}\text{ =}\$3.47\\ \text{EPS after one year}=\$3.6782\end{array}$

To compute: Implied return on the company’s stock over the next year.

Introduction: The implied return is an interest rate equal to the difference between the current rate and the future rate of the stock.