9. Analysts expect Walmart to have earnings per share of $5.60 for the coming year (year 1). Walmart intends to invest heavily in its online platform in the near term and therefore plans to retain and reinvest 60% of its earnings for the next three years (years 1, 2 and 3). For the next two years (years 4 and 5), retention and reinvestment is anticipated to decrease, with Walmart expected to retain 50% of its earnings. After that (year 6 onwards) the retention rate is expected to drop to 40% and remain that way. Walmarts new investments in online shopping are expected to generate a return of 15% per year. Walmarts equity cost of capital is estimated to be 8%.

a. Using the information provided above, estimate Walmarts share price today.

Suppose the retention rate estimate for year 6 onwards given above is not credible and you therefore ignore it (estimates prior to year 5 are still valid). Instead, you expect Walmarts 1-year forward price to earnings ratio in year 5 (i.e., PE ratio based on year 5 price and year 6 expected earnings) to be 24.5 (the midpoint between the S&P 500 historical average of 16 and Walmarts current PE ratio of 33).

b. Use this information to come up with another estimate of Walmarts share price.