Choice "A" is correct. Projected stock price would be approximately $102.50, computed as follows:
(P0) | = | PEG × E1 × G |
| = | 4 × ($10 × 1.025) × 2.5 |
| = | 4 × $10.25 × 2.5 |
| = | $102.50 |
Choice "b" is incorrect. The proposed answer does not apply a growth factor to the subsequent year’s earnings.
Choice "c" is incorrect. The proposed solution uses the P/E ratio rather than the PEG ratio.
Choice "d" is incorrect. The proposed solution applies the growth factor to the P/E ratio and does not use the PEG ratio.
