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&question (15%) Dygney Corporation earnings for 2018 were $1,90 per share and its closing stock price for the year was $25,50. Analysts estimates of 2019 earnings per share are about $1,06 Required a. Use accounting valuation model to estimate Dynegys stock price. Given: Earnings for 2016 per share Closing stock price for 2016 Estimated earnings per share for 2017 1.90 $25.50 1.06 Price-earnings ratio for 2016 Estimated stock price for 2017:
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Answer #1

To calculate the closing stock price for 2019, we need to first find the price earning ratio for 2018, after we get price earning ratio for 2018 we assume that price earning ratio will constant in 2019 and then we find the closing stock price of 2019 as per the price earning ratio of earlier year.

For the Year 2018

Earning per share = $1.90

Closing Stock price = $25.50

Price-Earning ratio = Closing Stock Price / Earning per Share

Price Earning ratio = $25.50 / $1.90

Price Earning ratio = 13.42 times

For the Year 2019

Given, Earning per share = $1.06

We know the Price earning ratio is 13.42 times

Putting value in Equation we get,

Closing Stock Price = Earning per share * Price Earning ratio

Closing Stock Price = $1.06 * 13.42

Closing Stock Price = $14.23

I hope you find this answer helpful, please like the answer and feel free to comment on any doubt if you have. There are 2 formula is used which were marked in bold.

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