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21 August, 00:13

The current price of Parador Industries stock is $78 per share. Current earnings per share are $5.1, the earnings growth rate is 4 percent, and Parador does not pay a dividend. The expected return on Parador stock is 22 percent.

1.

Calculate the earning per share one-year ahead. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

2.

Calculate the P/E ratio one-year ahead. (Round your answer to 2 decimal places.)

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Answers (1)
  1. 21 August, 00:20
    0
    1. $5.3

    2. 17.95

    Explanation:

    1. Earning per share today = $5.1

    Earning growth in one year = 4%

    So, the EPS one-year ahead:

    = Earning per share today * (1 + Earning growth in one year)

    = 5.1 * 1.04

    = $5.3

    2. Market price one-year ahead:

    = Current price * (1 + expected return on Parador stock)

    = 78 * 1.22

    = $95.16.

    P/E Ratio = Market price per share : Earning per share

    P/E Ratio = 95.16 : 5.3

    = 17.95
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