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/South Tech. b. Assume that earnings next year increase by 25%, but the P/E ratio 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 in 1 year at the price computed in part b, what rate of return would be earned?
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/South Tech. b. Assume that earnings next year increase by 25%, but the P/E ratio 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 in 1 year at the price computed in part b, what rate of return would be earned?
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Transcribed Image Text: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/South
Tech.
b. Assume that earnings next year increase by 25%, but the P/E
ratio 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 in
1 year at the price computed in part b, what rate of return would
be earned?
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