Final answer:
To calculate the projected stock price in 6 years for Ghost Riders Company, we would need positive EPS growth from its current negative state and would apply the PE ratio to forecasted earnings.
Step-by-step explanation:
A student has requested guidance on calculating the projected stock price of Ghost Riders Company, which currently has an EPS of ($1.51) and is expected to grow at 71 percent per year. With a PE ratio of 17.75, the future stock price is determined using forecasted earnings and PE ratio. However, the given EPS is negative, which complicates the calculation, as typical models imply positive earnings growth.
Under the assumption that the EPS will turn positive and grow at the specified rate, the compounded growth formula (Future Value = Present Value * (1 + Growth Rate)^Time) can be used to find the future EPS. Once a positive EPS is achieved, the PE ratio can be applied to find the stock price (Stock Price = Future EPS * PE Ratio). This method follows the principles of financial analysis for stock valuation.
In financial analysis, present value calculations such as Discounted Cash Flow (DCF) are often used to assess the value of future earnings. The reference to present value calculation with the 15% interest rate in the supporting information suggests using a discount rate to bring future profits to their present value equivalent when evaluating a stock's worth.
However, the specific use of these calculations is not applicable for determining the projected stock price in this context, as the question does not provide information about dividends or free cash flows. Instead, the focus is on earnings growth and its effect on future stock price driven by market sentiment encapsulated in the PE ratio.