Financial accounting question The stock of North/South Tech is currently selling for $85.60,which equates to a P/E ratio of 20.a. Using the P/E ratio, compute the current EPS of North/SouthTech.b. Assume that earnings next year increase by 25%, but the P/Eratio drops to 16, which is more in line with the industry average.What will be the price of North/South Tech stock next year?c. If an investor purchases the stock today for $85.60 and sells it in1 year at the price computed in part b, what rate of return wouldbe earned?

Step 1:a. The current EPS is calculated as follows: PE ratio = Market price per share / Earnings per…

Answered: The stock of North/South Tech is…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 3P

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