Valuation with price/earnings multiples For each of the firms shown in the follo

Question

Valuation with price/earnings multiples For each of the firms shown in the following
table, use the data given to estimate its common stock value employing price/
earnings (P/E) multiples.

    Firm Expected EPS        Price/earnings multiple

A      $3.00                                           6.2

B      4.50                                           10.0

C     1.80                                            12.6

D     2.40                                             8.9

E      5.10                                             15.0

Explanation / Answer

Expected EPS P/E Multiple stock price A 3 6.2 18.6 stock price = P/E * EPS B 4.5 10 45 C 1.8 12.6 22.68 D 2.4 8.9 21.36 E 5.1 15 76.5

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