Question

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

Answer 1

C) $110.91, $81.90 respectively

Step-by-step explanation:

Earning per share after year 5 = $5.10*(1+6%)^5

Earning per share after year 5 = $5.10*(1.06)^5

Earning per share after year 5 = $5.10*1.33823

Earning per share after year 5 = $6.825

If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged?

Price per share = P/E ratio * Earning per share

Price per share = 16.25*$6.825

Price per share = $110.91

What would the price be if the P/E ratio declined to 12 in five years?

Price per share = P/E ratio * Earning per share

Price per share = 12*$6.825

Price per share = $81.90