If Walmart (WMT) recently earned a profit of $5.10 per share and has a P/E ratio of 16.25. The dividend has been growing at a 6 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 declined to 12 in five years?
A) $41.44, $30.60 respectively
B) $82.88, $61.20 respectively
C) $110.91, $81.90 respectively
D) $414.38, $306.00 respectively

Question

Quizplus · Accepted Answer

The future earnings per share (EPS) in five years can be calculated using the growth rate: $5.10 * (1 + 0.06)^5 = $6.82. If the P/E ratio remains at 16.25, the stock price would be 16.25 * $6.82 = $110.91. If the P/E ratio declines to 12, the stock price would be 12 * $6.82 = $81.90.

If Walmart (WMT) Recently Earned a Profit of $5