SOLVE #5

1. Canadian Tire had earnings per share of 10.02 last year. They are expecting to grow earnings by 10% in the next twelve months. The stock is trading at $161.72 today.

a) Calculate the Trailing twelve month P/E.

b) Calculate the forward twelve month P/E multiple for the stock.

2. For the stocks if we assume that the trailing earning multiple can be used to value the share price next year assuming no changes in the economy or industry outlook, what would the 12 month return for Canadian Tire stock be?

3. Calculate the share price return for each of the stocks in question #1 and #2 assuming no changes in the P/E multiples over the next year. Use the appropriate P/E multiplier. 4. In question 1 and 2 above, are there any discrepancies you noticed? If so what were they and briefly explain what you noticed.

5. Which individual stock would you purchase based on the information given above in question 1 and 2? (Brief explanation)