Question

If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company:

Year 1 Year 2 Year 3 Year 4

High price $ 27.43 $ 26.32 $ 30.42 $ 37.01

Low price 19.86 20.18 26.65 26.41

EPS 1.35 1.58 1.51 1.85

Earnings are projected to grow at 9 percent over the next year.

What is your high target stock price over the next year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

High target stock price $

What is your low target stock price over the next year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Low target stock price $

Answer 1

Given that
Year	High price	Low price	EPS
1	27.43	19.86	1.35
2	26.32	20.18	1.58
3	30.42	25.65	1.51
4	37.01	26.41	1.85
High and low price ratio each year.
	i	ii	iii	iv=i/iii	v=ii/iii
				PE ratio
Year	High price	Low price	EPS	High	Low
1	27.43	19.86	1.35	20.32	14.71
2	26.32	20.18	1.58	16.66	12.77
3	30.42	25.65	1.51	20.15	16.99
4	37.01	26.41	1.85	20.01	14.28
Average of higher and low PE
Year	PE high	PE low
1	20.32	14.71
2	16.66	12.77
3	20.15	16.99
4	20.01	14.28
Total	77.13	58.75
Average = total /4	19.28	14.69
EPS projected growth = 9%
Therefore next year EPS = 1.85*109%				2.02
high price target = 2.02*19.28				38.88
Low price target = 2.02*14.69				29.62