Ask Question
22 February, 00:56

If Target Corp. (TGT) recently earned a profit of $6.07 earnings per share and has a P/E ratio of 16.5. The dividend has been growing at a 10 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 18 in five years?

0
Answers (1)
  1. 22 February, 02:34
    0
    Question 1:

    What would be the stock price in five years if the P/E ratio remained unchanged?

    Answer: $161.30

    Question 2:

    What would the price be if the P/E ratio increased to 18 in five years?

    Answer: $175.96

    Explanation:

    Question 1:

    What would be the stock price in five years if the P/E ratio remained unchanged?

    Solution:

    PV = $6.07

    I = 10%

    PMT = 0

    N = 5

    CPT FV = PV * (1+1/Y) ^N

    CPT FV = $6.07 * (1+0.10) ^5

    CPT FV = $9.78

    Stock price in five years = $9.78*16.5 = $161.30 (answer)

    Question 2:

    What would the price be if the P/E ratio increased to 18 in five years?

    CPT FV = $9.78

    Price = CPT FV * 18

    Price = $9.78 * 18

    Price = $175.96 (answer)
Know the Answer?