ABC assuming 1 Calculate the target price price in 2020 and

ABC assuming 1) Calculate the target price (price in 2020) and intrinsic value (price today) of The 2020 EPS is expected to be $10 per share the indst that ABina fast growing industry and peerprice earnings ratios are market multiple -a reasonable market multiple for 2020 is 16X forward earnings (S&P; 500) - ABC is expected to pay a dividend of $1 in 2018, 2019 and 2020 -the cost of equity is 10% -assume it is the end of 2017

Solution

From Industry data: P/E = 2

For ABC:

EPS = 10

P = 2*10*16 = 320

Target price in 2020 = $320

Price today = 1/1.1 + 1/1.1^2 + 1/1.1^3 + 320/1.1^3 = 242.91