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RAK, Inc., currently has an EPS of $1.60 and an earnings growth rate of 7 percent....

RAK, Inc., currently has an EPS of $1.60 and an earnings growth rate of 7 percent. If the benchmark PE ratio is 21, what is the target share price five years from now?

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Expert Solution

Earnings per share five years from now = $ 1.60* (1 + growth rate)^n

= $ 1.6 (1.07)^5

= $ 1.60* 1.40255173

= $ 2.2441

PE ratio = Stock price / EPS

Expected stock price = PE ratio * EPS

= 21 * $ 2.244

= $ 47.12

jeff jeffy answered 2 years ago
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