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Campion Industries stock sells for 24 times earnings today, and is expected to grow at 8%...

Campion Industries stock sells for 24 times earnings today, and is expected to grow at 8% per year. If earnings are currently $14.12 per share, and the most recent annual dividend was $4.04 per share, what stock price would you expect to pay today? If growth continues as anticipated, what would you expect the stock price to be next year? What total rate of return does that represent for the year?

Solutions

Expert Solution

A)Stock price today = Earnings * PE ratio

                                   = 14.12 *24

                                   = $ 338.88 per share

b)Stock price next year = P0(1+g)

            = 338.88 ( 1+ .08)

            = $ 365.99 per share

c)Rate of return =[D0(1+g)/price0] +g

            =[4.04 (1+.08)/338.88 ] +.08

            =[4.04 *1.08 /338.88 ] +.08

            = .0129+.08

            = .0929 or 9.29%

jeff jeffy answered 1 year ago
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