Answer-first summary for fast verification
Answer: $152.50
## Explanation The terminal value per share at Year 3 is calculated using the industry median trailing P/E ratio of 10 and the Year 3 earnings per share of $15.25. **Calculation:** - Terminal Value per Share = P/E Ratio × Earnings per Share - Terminal Value per Share = 10 × $15.25 = $152.50 **Key Points:** - The trailing P/E ratio uses the most recent earnings (Year 3) - The constant growth rate of 5% after Year 3 is not relevant for this calculation since we're using the industry P/E benchmark method - The dividend information is not needed for this calculation Therefore, the terminal value per share at Year 3 is $152.50.
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65 An analyst gathers the following information about Health-Drinks Inc. The median trailing P/E for companies in the same industry is 10. The analyst expects a constant growth rate of 5% after Year 3.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Earnings per share | $13.20 | $14.52 | $15.25 |
| Dividend per share | $6.60 | $7.26 | $7.62 |
Using industry P/E as the benchmark, Health-Drinks Inc.'s terminal value per share at Year 3 is closest to:
A
$76.20
B
$152.50
C
$160.13
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