Davis, Inc. currently has an EPS of $2.01 and an earnings growth rate of 8%. The benchmark PE...

Question:

Davis, Inc. currently has an EPS of $2.01 and an earnings growth rate of 8%. The benchmark PE ratio is 24. What is the target share price in 6 years? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Price Earnings Ratio

The price earnings ratio is a market valuation measure of a company and gives the dollars investors are willing to pay in the markets for every dollar of company's earnings. The price earnings ratio of a firm is compared with peers to determine the level of undervaluation or overvaluation.

Answer and Explanation: 1

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Given -

  • Earnings per Share = $2.01
  • Growth Rate = 8% = 0.08
  • Benchmark Price Earnings = 24

Since the growth rate is constant, we first need to find...

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The Price-Earnings Ratio: Definition, Formula, and Analysis

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Chapter 13 / Lesson 5
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In this lesson, we'll review the definition of a stock's price-earnings ratio and show how investors can use it in the analysis of the decision to buy or sell that stock.


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