Compute the value of a share of Fellows Company stock using the price-earnings multiples method Valuation Using Price-Earnings Multiples. The Fellows Company is planning an initial public offering(IPO) and management would like to have an idea of an appropriate price to charge for a share of its stock.The company plans to issue 100,000 shares. The Fellows Company's most recent earnings per share (EPS) are$1.30; however, the consensus forecast among analysts who follow the company is for EPS to be $1.45. TheEPS and share price of four comparable firms are shown below:FirmEPSShare PriceP/E ratio$ 2.00$ 36.00A.181.2026.40225.0070.00142.2057.2026Compute the value of a share of Fellows Company stock using the price-eamings multiples method.IBCD

Value of share by Price earnings ratio = P/E ratio * Earnings per shareFor Fellows company, EPS = $1.45 per share P/E ratio = 18 Value of share = 18*1.45 = $26.1 per share

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Business

Accounting

Compute the value of a share of Fellows Company stock using the price-earnings multiples method

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Stockholder's Equity

The stockholders’ equity (often referred to as the book value of the company) is the number of assets available to the stockholder after its entire liabilities is paid off. The stockholders’ equity is also sometimes referred to as owner's equity. The stockholders’ equity or book value generally includes common stock, treasury stock retained earnings. It is an indicator of a company's financial strength and is an important item on the company's balance sheet.

Question

Compute the value of a share of Fellows Company stock using the price-earnings multiples method

Valuation Using Price-Earnings Multiples. The Fellows Company is planning an initial public offering
(IPO) and management would like to have an idea of an appropriate price to charge for a share of its stock.
The company plans to issue 100,000 shares. The Fellows Company's most recent earnings per share (EPS) are
$1.30; however, the consensus forecast among analysts who follow the company is for EPS to be $1.45. The
EPS and share price of four comparable firms are shown below:
Firm
EPS
Share Price
P/E ratio
$ 2.00
$ 36.00
A.
18
1.20
26.40
22
5.00
70.00
14
2.20
57.20
26
Compute the value of a share of Fellows Company stock using the price-eamings multiples method.
IBCD

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