The current price of DEF Corporation stock is​ $26.50 per share. Earnings next year should be​ $2 per share and it should pay a​ $1 dividend. The​ P/E multiple is 15 times on average. What price would you expect for​ DEF's stock in the​ future?

To calculate the expected future price of DEF Corporation's stock, we can use the **Price-to-Earnings (P/E) ratio** formula:

\[
\text{Price} = \text{Earnings per share (EPS)} \times \text{P/E ratio}
\]

### Given Information:
- Current stock price: $26.50
- Expected earnings per share next year (EPS): $2
- Expected dividend per share: $1
- Average P/E multiple: 15 times

### Step-by-step calculation:
1. **Calculate expected stock price**:
   Using the P/E ratio formula:
   \[
   \text{Expected Price} = \text{EPS} \times \text{P/E multiple}
   \]
   Substituting the values:
   \[
   \text{Expected Price} = 2 \times 15 = 30
   \]

So, the expected price of DEF Corporation's stock in the future is **$30** per share.

Would you like more details on any specific step or further clarification?

### Related Questions:
1. How does the dividend payment affect stock valuation?
2. What factors influence the P/E multiple of a company?
3. How does EPS growth impact stock price predictions?
4. What is the difference between forward P/E and trailing P/E ratios?
5. How would changes in market conditions affect future stock price expectations?

### Tip:
The P/E ratio is a useful tool, but it’s important to compare it with other industry peers to understand whether a stock is over- or under-valued.

Learn how to calculate the expected stock price of DEF Corporation using the Price-to-Earnings (P/E) ratio. With a current price of $26.50, an expected EPS of $2, and a P/E multiple of 15, this problem covers fundamental finance concepts related to stock valuation and market expectations.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation