You are provided with the following information about Javier Corporation: • Sale

Question

You are provided with the following information about Javier Corporation: • Sales for the year 2017 were $500,000; • The Net Profit Margin (NPM) was 15%. • Analysts project sales to grow by 12% next year (that is 2018). However, because of more competition, the NPM is expected to decline by 10% for the year 2018. • The expected P/E multiple for the year 2011 is 22. • The total number of shares outstanding is 20,000. Use the earnings multiplier model to calculate the expected price for Javier Corporation in the year 2011.

Explanation / Answer

Sales for 2017 = 500,000(1.12) = 560,000

New NPM = .15(1 -.1) = .1352005

NPM = 560,000(.135)

   = 75,600EPS

    = 75,600/20,000

    = $3.78Price

    = 3.78(22)

= $83.16

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