Bundle: Fundamentals of Financial Management, Loose-leaf Version, 15th + MindTap Finance, 2 terms (12 months) Printed Access Card
15th Edition
ISBN: 9781337609876
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 4, Problem 21P
Summary Introduction
To determine: The stock price in 1 year, if price/earnings ratio remains at its current level.
Earnings per Share (EPS):
Earnings per share, is the ratio of profit after tax and number of outstanding equity share. It is the amount earned by each equity shares of the company. Earnings per share determine the profitability of the firm in terms of equity shares.
Price Earnings Ratio (P/E Ratio):
The ratio of the earnings per share and market price of a share is called price earnings ratio. This ratio indicates that to earn one rupee, how much money an investor need to invest in that particular share.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
P/E AND STOCK PRICE
Ferrell Inc. recently reported net income of $10 million. It has 420,000 shares of common stock, which currently trades at $51 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $14.5 million. Over the next year, it also anticipates issuing an additional 63,000 shares of stock so that 1 year from now it will have 483,000 shares of common stock. Assuming Ferrell's price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent
Ferrell Inc. recently reported net income of $9 million. It has 470,000 shares of common stock, which currently trades at $47 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $12.15
million. Over the next year, it also anticipates issuing an additional 47,000 shares of stock so that 1 year from now it will have 517,000 shares of common stock. Assuming Ferrell's price/earnings ratio remains at its current level, what
will be its stock price 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent.
$
Ferrell Inc. recently reported net income of $8 million. It has540,000 shares of common stock, which currently trades at $21 a share. Ferrell continuesto expand and anticipates that 1 year from now its net income will be $13.2million. Over the next year, it also anticipates issuing an additional 81,000 shares ofstock so that 1 year from now it will have 621,000 shares of common stock. AssumingFerrell’s price/earnings ratio remains at its current level, what will be its stock price1 year from now?
Chapter 4 Solutions
Bundle: Fundamentals of Financial Management, Loose-leaf Version, 15th + MindTap Finance, 2 terms (12 months) Printed Access Card
Ch. 4 - Financial ratio analysis is conducted by three...Ch. 4 - Prob. 2QCh. 4 - Over the past year, M.D. Ryngaert Co. had an...Ch. 4 - Profit margins and turnover ratios vary from one...Ch. 4 - How does inflation distort ratio analysis...Ch. 4 - Prob. 6QCh. 4 - Give some examples that illustrate how (a)...Ch. 4 - Why is it sometimes misleading to compare a...Ch. 4 - Suppose you were comparing a discount merchandiser...Ch. 4 - Prob. 10Q
Ch. 4 - Differentiate between ROE and ROIC.Ch. 4 - Prob. 12QCh. 4 - DAYS SALES OUTSTANDING Baxley Brothers has a DSO...Ch. 4 - DEBT TO CAPITAL RATIO Kayes Kitchenware has a...Ch. 4 - DuPONT ANALYSIS Hendersons Hardware has an ROA of...Ch. 4 - MARKET/BOOK AND EV/EBITDA RATIOS Edelman Engines...Ch. 4 - PRICE/EARNINGS RATIO A company has an EPS of 2.40,...Ch. 4 - DuPONT AND ROE A firm has a profit margin of 3%...Ch. 4 - Prob. 7PCh. 4 - DuPONT AND NET INCOME Precious Metal Mining has 17...Ch. 4 - BEP, ROE, AND ROIC Broward Manufacturing recently...Ch. 4 - M/B,SHARE PRICE, AND EV/EBITDA You are given the...Ch. 4 - RATIO CALCULATIONS Assume the following...Ch. 4 - Prob. 12PCh. 4 - TIE AND ROIC RATIOS The W.C. Pruett Corp. has...Ch. 4 - RETURN ON EQUITY Pacific Packagings ROE last year...Ch. 4 - RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has...Ch. 4 - RETURN ON EQUITY Commonwealth Construction (CC)...Ch. 4 - CONCEPTUAL: RETURN ON EQUITY Which of the...Ch. 4 - TIE RATIO MPI Incorporated has 6 billion in...Ch. 4 - CURRENT RATIO The Stewart Company has 2,392,500 in...Ch. 4 - DSO AND ACCOUNTS RECEIVABLE Ingraham Inc....Ch. 4 - Prob. 21PCh. 4 - BALANCE SHEET ANALYSIS Complete the balance sheet...Ch. 4 - RATIO ANALYSIS Data for Barry Computer Co. and its...Ch. 4 - Income Statement for Year Ended December 31, 2018...Ch. 4 - RATIO ANALYSIS The Corrigan Corporation's 2017 and...Ch. 4 - FINANCIAL STATEMENTS AND TAXES Part I of this...Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Prob. 3TCLCh. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....Ch. 4 - Conducting a Financial Ratio Analysis on HP INC....
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- FA corporation recently reported a net ncome of $2,000,000. The company has 500,000 shares of common stock that currently trade for $40 per share . The company continues to expand and anticipates that one year from now its net income will be $3.25 million. Over the next yesr the company also anticipates issuing an additional 150,000 shares ,so that one year from now the company will have 650,000 shares of common stock . a) Assuming the company's price to earnings ratio remains at its current level, what will be the company's stock price one year from now ? b) The PE ratio is a very common method used by investors to get a quick calculation on the market's perception of a company. Evaluate the fornula used to calculate the PE ration focusing on the limitations of this method of valuation ?arrow_forwardAt year end, Sampson Company's balance sheet showed total assets of $80 million, total liabilities of $50 million, and 1,000,000 shares of common stock outstanding. Next year, Malta is projecting that it will have net income of $2.9 million. If the average P/E multiple in Malta's industry is 16, (and this is an average stock) what should be the price of Sampson's stock? O $50.43 O $46.40 O $44.57 O $41.60arrow_forwardPanhandle Industries Inc. currently pays an annual common stock dividend of $3.20 per share. The company's dividend has grown steadily over the past 12 years from $1.60 to its present level; this growth trend is expected to continue. The company's present dividend payout ratio, also expected to continue, is 50 percent. In addition, the stock presently sells at 5 times current earnings (that is, its P/E multiple is 5). Panhandle Industries stock has a beta of 1.15, as computed by a leading investment service. The present risk-free rate is 4.0 percent, and the expected return on the stock market is 12.0 percent. Do not round intermediate calculations. Round your answers to the questions below to two decimal places. a. Suppose an individual investor feels that 11 percent is an appropriate required rate of return for the level of risk this investor perceives for Panhandle Industries. Using the dividend capitalization model and the Capital Asset Pricing Model approaches, determine whether…arrow_forward
- General Accountingarrow_forwardPlease can I get detailed step by step workings for this question?arrow_forward• Pan Asia Mining Company’s stock (Ticker: PAMC) is trading at $22.50. • The company has forecasted net income and book value of equity for the coming year to be $1,420,200 and $11,115,000, respectively. • The company has also been paying dividends for the past 8 years and has maintained a dividend payout ratio of 45.00%. Based on this information, what will be PAMC’s growth rate in earnings and dividends? Which of the following statements accurately describes the relationship between earnings and dividends when all other factors are held constant? Growth in earnings requires growth in dividends. Long-run earnings growth occurs primarily because firms pay dividends to reward their shareholders for investing in the company. Retaining a higher percentage of earnings will result in a higher growth rate.arrow_forward
- Need Answer to this question fastarrow_forwardYou are given the following information concerning Parrothead Enterprises: Debt: Common stock: 285,000 shares of common stock selling for $65.70 per share. The stock has a beta of .97 and will pay a dividend of $3.90 next year. The dividend is expected to grow by 5.2 percent per year indefinitely. Preferred stock: 9,200 shares of 4.60 percent preferred stock selling at $95.20 per share. Market: 10,200 7.2 percent coupon bonds outstanding, with 23 years to maturity and a quoted price of 107.00. These bonds pay interest semiannually. An expected return of 10.8 percent, a risk-free rate of 5.10 percent, and a 30 percent tax rate. Show Transcribed Text What is the firm's cost of each form of financing? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Aftertax cost of debt Cost of preferred stock Cost of equity WACC % Calculate the WACC for the company. (Do not round intermediate calculations and enter your answer as a…arrow_forwardI have just purchased 200 shares of LTC Limited preferred shares. It is currently selling for $40 per share. The annual dividend is $3.40 per share. At the same period, National System has just paid dividend of $1.00. It is estimated that the company's growth rate to be 5 percent p.a. for the next 2 years. After that, dividends are expected to grow at a rate of 10 percent p.a. indefinitely. a) What is the expected return on LTC shares? b) If my required rate of return is 8%, will you advise me to buy more shares of LTC shares or sell what I have under the market pricing? c) If I require a 12% rate of return on equity, what is my expected current price of the National System's share? d) Based on parts (b) and (c) above, explain why an investor would expect the different rate of return on the shares under consideration?arrow_forward
- Panhandle Industries, Inc., currently pays an annual common stock dividend of $8.80 per share. The company’s dividend has grown steadily over the past 10 years at 8 percent per year; this growth trend is expected to continue for the foreseeable future. The company’s present dividend payout ratio, also expected to continue, is 40 percent. In addition, the stock presently sells at eight times current earnings— that is, its “multiple” is 8. What is the company’s cost of equity capital? (? )%arrow_forwardPanhandle Industries, Inc., currently pays an annual common stock dividend of $2.20 per share. The company’s dividend has grown steadily over the past 10 years at 8 percent per year; this growth trend is expected to continue for the foreseeable future. The company’s present dividend payout ratio, also expected to continue, is 40 percent. In addition, the stock presently sells at eight times current earnings— that is, its “multiple” is 8.Calculate the company’s cost of equity capital using the dividend-capitalization model approach.arrow_forward4. Prenda Inc. reported a net income of P750,000. The company has 250,000 shares of common stock and it is currently trades at P45 per share. The company continue to expand and anticipates that one year from now, its net income will be P1,250,000. Over the year, the company anticipates issuing additional 100,000 shares of stock, so that one year from now the company will have 350,000 shares of commons stock. Assuming the company’s price/earnings ratio remain at its current level, what will be the company’s stock price one year from now? 5. You are considering the purchase of Pasaha Company stock. You anticipate that the company will pay dividend of P2.25 per share next year and P2.50 per share the following year. You believe that you can sell the stock for P18.50 per share two years from now. If your required rate of return is 12.5%, what is the maximum price you would pay for a share? 6. You are considering to purchase of Havana Company Stocks. The firm has just paid a dividend of…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT