2. 28.

Share valuation and PE [LO 8.2] In the previous problem, we assumed that the shares had a single share price for the year. However, if you look at share prices over any year, you will find a high and low share price for the year.

Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low share price for the next year. Suppose we have the following information on a particular company over the past four years:

1. Earnings are projected to grow at 9 per cent over the next year. What are your high and low target share prices over the next year?

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Year 1 Year 2 Year 3 Year 4 High price $27.43 $26.32 $30.42 $37.01 Low price 19.86 20.18 25.65 26.41 EPS 1.35 1.58 1.51 1.85