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A stock currently has $10 EPS. Analysts estimate EPS may grow at 20% per year over...

A stock currently has $10 EPS. Analysts estimate EPS may grow at 20% per year over the next five years. What is the estimated stock price in five years if an investor thinks the stock will then sell for a 10 P/E ratio?

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Answer #1

Working Note:

Year EPS
1 $10.00
2 $12.00
3 $14.40
4 $17.28
5 $20.74

Since EPS is growing every year therefore in 5th year it would be $20.74

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

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