Click here to read the ebook: Market Value Ratios P/E AND STOCK PRICE ferrell In

Question

Click here to read the ebook: Market Value Ratios P/E AND STOCK PRICE ferrell Inc. recently reported net income of s5 million. It has 560,000 shares of common stock, which currently trades at $45 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $7.5 million. Over the next year, it also anticipates issuing an additional 112,000 shares of stock so that 1 year from now it will have 672,000 shares of common stock. Assuming Ferrell's price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent.

Explanation / Answer

Calculation of current Price Earnings ratio = Market price / EPS

=45/[50,00,000/560,000]

=45/8.93

=5.04

EPS in 1 year would be =75,00,000/6,72,000

=11.16

So market price per stock after 1 year = 11.16* PE Ratio =11.16*5.04=56.25

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.