Question: Valley Dew Corporation currently has an EPS of $3.80, and the benchmark PE for the company is 37. Earnings are expected to grow at 10 percent per year. a. What is your estimate of the current stock price? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What is the target stock price in one year? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. Assuming the company pays no dividends, what is the implied return on the company’s stock over the next year? Note: Do not round intermediate calculations and enter your answer rounded to the nearest whole percent. a. Current stock price b. Target stock price c. Implied return of stock

1. **State the problem:** We are given the earnings per share (EPS) of Valley Dew Corporation as $3.80$, the price-to-earnings (PE) ratio as $37$, and the expected earnings growth rate as $10\%$ per year. We need to find: a. The current stock price. b. The target stock price in one year. c. The implied return on the stock over the next year assuming no dividends. 2. **Formulas and important rules:** - Current stock price is calculated as: $$\text{Price} = \text{EPS} \times \text{PE}$$ - Earnings next year grow by $10\%$, so: $$\text{EPS}_{1} = \text{EPS} \times (1 + g)$$ where $g = 0.10$. - Target stock price in one year: $$\text{Price}_{1} = \text{EPS}_{1} \times \text{PE}$$ - Implied return is the percentage increase in stock price: $$\text{Return} = \frac{\text{Price}_{1} - \text{Price}}{\text{Price}} \times 100\%$$ 3. **Calculate the current stock price:** $$\text{Price} = 3.80 \times 37 = 140.6$$ 4. **Calculate EPS in one year:** $$\text{EPS}_{1} = 3.80 \times (1 + 0.10) = 3.80 \times 1.10 = 4.18$$ 5. **Calculate target stock price in one year:** $$\text{Price}_{1} = 4.18 \times 37 = 154.66$$ 6. **Calculate implied return:** $$\text{Return} = \frac{154.66 - 140.6}{140.6} \times 100 = \frac{14.06}{140.6} \times 100$$ $$= 0.1 \times 100 = 10\%$$ **Final answers:** - a. Current stock price = $140.60$ - b. Target stock price in one year = $154.66$ - c. Implied return = $10\%$