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The book value of equity for Shale Oil, Inc. is currently $23/share. Its required rate of...

The book value of equity for Shale Oil, Inc. is currently $23/share. Its required rate of return is 9%. The company’s expected EPS one period from today is $3.74. Assuming that the company’s EPS is expected to grow at a constant rate of 4% per year in perpetuity, calculate the present value of the company’s stock.

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Expert Solution

Calculation of price of stock:
Growth= 4%
Required return= 9%
EPS 1= 3.74
Price= EPS1/(required return-growth)
          = 3.74/(0.09-0.04)= 3.74/0.05= $74.8
Price of stock is $74.8

jeff jeffy answered 2 years ago
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