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What is the market implicit target price at the end

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Question - Tarek Corp reported a book: value for its 563.6 million common shares of $5.650 million on December 31, 2016. Analysts are forecasting EPS of $3.36 for 2017 and $3.60 for 2018, and the indicated dividend per share is $1.36 for both 2017 and 2018. Accepting these forecasts as valid, and using a required equity return of 9% deal with the following.

1- Prepare a table of terminal value at the end of 2018, based on the following forecasts:

  • Residual earnings will remain constant after 2018
  • Residual earnings will grow at 2% after 2018
  • Residual earnings will grow at 4% after 2018

2- Tarek is currently trading at $52 per share. What is the market's forecast of the growth rate in residual earnings after 2018?

3- At this implicit growth rate, what are the EPS that the market is forecasting for 2019 and 2020?

4- What is the market's implicit target price at the end of 2018?

Reference no: EM131601249

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