Question

new york times company (nyt) recently earned a profit of $2.61 per share and has a p/e ratio of 19.90. the dividend has been growing at a 6.25 percent rate over the past six years. if this growth rate 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 increased to 26 in five years?

Answer 1

Step-by-step explanation:

To calculate the stock price in five years based on the given information, we'll first determine the dividend per share (DPS) in the current year and then use it to calculate the stock price using the price-to-earnings (P/E) ratio.

Given:

Current profit per share (EPS) = $2.61

P/E ratio = 19.90

Dividend growth rate = 6.25% per year

Step 1: Calculate the dividend per share (DPS) in the current year.

DPS = EPS * (1 + growth rate)

DPS = $2.61 * (1 + 0.0625)

DPS = $2.61 * 1.0625

DPS = $2.77

Step 2: Calculate the stock price in five years if the P/E ratio remains unchanged.

Stock Price = DPS * P/E ratio

Stock Price = $2.77 * 19.90

Stock Price = $55.07

Therefore, if the P/E ratio remains unchanged, the stock price in five years would be approximately $55.07.

Step 3: Calculate the stock price in five years if the P/E ratio increases to 26.

Stock Price = DPS * New P/E ratio

Stock Price = $2.77 * 26

Stock Price = $71.02

Therefore, if the P/E ratio increases to 26 in five years, the stock price would be approximately $71.02.