The 12-month trailing EPS for Forever Fabrication Factory (FFF) as of December 3

Question

The 12-month trailing EPS for Forever Fabrication Factory (FFF) as of December 31, 2007, is $1.29. FF stock trades at $42.50 per share as of 12/31/07. In the first two quarters of 2007, FFIF reported an extraordinary loss of $0.22 per share. In the third quarter, the company reported a loss from the write-down of inventory of $0.04 per share. In the fourth quarter, FFF reported a gain of $0.08 per share froma change in accounting estimate when it increased the estimate of useful life of certain manufacturing equipment. FFFs trailing P/E ratio based on underlying earnings is closest to: Select one: a. 24.6 b. 28.9 C. 32.5 d. 36.1

Explanation / Answer

We have to use the EPS for FFF as of December 31,2006. Since the date of the trading is still 2007.

So EPS2007=EPS2006 +GAINS-LOSSES

THEN EPS2006=EPS2007-GAINS+LOSSES=1.29-0.08+0.04+0.22=1.47

Then trailing P/E ratio=Stock Price/EPS2006=42.5/1.47=28.91

Answer B

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