Bundle: Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition 6-Month Printed Access Card), 8th + Aplia Printed Access Card
8th Edition
ISBN: 9781305132559
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 3, Problem 5DQ
Summary Introduction
To determine: Whether there has been a strong correlation between the stock price performance and reported earnings.
Assets:
Assets are the resources owned by the business that are used for current and future revenue generation of the business. Therefore, the value of the assets matches with the amount of owners’ capital investment and the amount of borrowed fund. This fact is depicted in the accounting equation that equates assets with the sum total of owners’ equity and the liabilities.
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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 over the past four years:
Year 1
Year 2
Year 3
Year 4
High price
$ 99.70
$ 123.30
$ 132.70
$ 149.33
Low price
74.53
90.64
71.32
117.85
EPS
8.98
10.73
11.81
13.20
Earnings are projected to grow at 9 percent over the next year.
a.
What is your high target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.
What is your low target stock price over the next year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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
$87.93
$100.35
$121.89
$133.60
Low price
69.85
83.19
79.99
110.18
EPS
6.54
8.96
8.62
10.21
Earnings are expected to grow at 5.5 percent over the next year.
a. What is the high target stock price over the next year? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. What is the low target stock price over the next year? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
a.
High target price
b. Low target price
price
Chapter 3 Solutions
Bundle: Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition 6-Month Printed Access Card), 8th + Aplia Printed Access Card
Ch. 3 - Prob. 1QCh. 3 - Who are some of the basic users of financial...Ch. 3 - If a typical firm reports 20 million of retained...Ch. 3 - Explain the following statement: Although the...Ch. 3 - Prob. 5QCh. 3 - Prob. 6QCh. 3 - Prob. 7QCh. 3 - Prob. 8QCh. 3 - How are managements actions incorporated in EVA...Ch. 3 - Explain the following statement: Our tax rates are...
Ch. 3 - Prob. 11QCh. 3 - How does the deductibility of interest and...Ch. 3 - BALANCE SHEET The assets of Dallas Associates...Ch. 3 - INCOME STATEMENT Little Books Inc. recently...Ch. 3 - INCOME STATEMENT Pearson Brothers recently...Ch. 3 - STATEMENT OF STOCKHOLDERS' EQUITY In its most...Ch. 3 - MVA Henderson Industries has 500 million of common...Ch. 3 - MVA Over the years, McLaughlin Corporation's...Ch. 3 - EVA Britton Industries has operating income for...Ch. 3 - Prob. 8PCh. 3 - STATEMENT OF STOCKHOLDERS' EQUITY Computer World...Ch. 3 - EVA For 2014, Everyday Electronics reported 22.5...Ch. 3 - Prob. 11PCh. 3 - STATEMENT OF CASH FLOWS You have just been hired...Ch. 3 - Prob. 13PCh. 3 - INCOME STATEMENT Hermann Industries is forecasting...Ch. 3 - FINANCIAL STATEMENTS The Davidson Corporation's...Ch. 3 - FREE CASH FLOW Financial information for Powell...Ch. 3 - FINANCIAL STATEMENTS, CASH FLOW, AND TAXES Laiho...Ch. 3 - Prob. 18ICCh. 3 - Looking at the most recent year available, what is...Ch. 3 - Prob. 2DQCh. 3 - Prob. 3DQCh. 3 - Prob. 4DQCh. 3 - Prob. 5DQ
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