3) What is the current valuation of XYZ if you expect EPS in 2023 to be $14. The stock pays a dividend of $3.00 which you assume will remain steady. The market multiple is 18x and XYZ should be valued at a 10% premium to that (at the end of 2023). The risk-free rate is 3%, the market risk premium is 7% and the beta of XYZ is 1.1 – assume it is the end of 2022.
HINT – you are arriving at a valuation for the end of 2023 – once you have that you discount that and the dividend back 1 year to the present.
Relative Valuation:
P/E = Market Multiple X (1 + Premium)
Stock Value = P/E X EPS