ROE: 763,200 / 5.3m = 0.144
growth rate g = ROE * (1 - payout ratio)
g = 0.144 * (1 - 0.565) = 0.06264
expected earnings: current earnings * ( 1 + g)
763,200 * 1.06264 = 811,006.85
E(eps) = 811,006.85 / 120,000 shares = $6.75839
PE * E(eps) = target price
17 * 6.75839 = $114.89
[or if you round E(eps) first: 17* 6.76 = $114.92]
pj
Plush Pilots, Inc., has balance sheet equity of $5.3 million. At the same time, the income statement shows net income of $763,200. The company paid dividends of $431,208 and has 120,000 shares of stock outstanding. If the benchmark PE ratio is 17, what is the target stock price in one year?
If I could also get an explanation, that would be great. I can find the current EPS, but I don't know how to find EPS at year one and the target price at year one without an interest rate.
Thank you for your help!
