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xyz'z eps for the current year is 2.25 and its current P/E ratio is 12. you...

xyz'z eps for the current year is 2.25 and its current P/E ratio is 12. you have forecasted that EPS will grow by 6% and the P/E will increase by 10%. What do you expect the price of a sharae of xyz's stock to be at the end of next year

Solutions

Expert Solution

Current year EPS = 2.25

Current P/E ratio = 12

Growth in EPS is 6% or 0.06

Expected EPS = Current EPS * (1 + Growth rate)

= $2.25 * (1+0.06)

= $2.25 * 1.06

= $2.385

Growth in PE ratio is 10% or 0.10

Expected P/E ratio = Current PE ratio* (1 + Growth rate)

= 12 * (1+0.10)

= 12 * 1.10

= 13.2

PE ratio = Price of share / EPS

13.2 = Price of share / $2.385

Price of share =13.2 * 2.385

= $31.482

The price at year end would be $31.482

jeff jeffy answered 2 years ago
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