Question

The Blooming Flower Co. has earnings of $2.10 per share. The
benchmark PE for the company from a comparables analysis is
10.

What stock price would you consider appropriate? **(Do not
round intermediate calculations. Round your answer to 2 decimal
places, e.g., 32.16.)**

Stock price
$

What if the benchmark PE were 13? **(Do not round
intermediate calculations. Round your answer to 2 decimal places,
e.g., 32.16.)**

Stock price
$

Answer #1

**Price to Earnings ratio of PE ratio can be defined as
the relationship between stock price and earnings.**

**The formula for PE ratio is Price per share of the
company / Earnings per share of the company.**

**In other words Stock Price = Earnings per share of the
company * PE ratio**

**Therefore PE can be used to find out the Stock prices
when data relating to Earnings per share and PE ratio is
given.**

Situation 1

Earnings per share of the company = $2.10

PE ratio = 10

Therefore Stock Price = $2.10 * 10

**Stock Price = $21**

Situation 2

Earnings per share of the company = $2.10

PE ratio = 13

Therefore Stock Price = $2.10 * 13

**Stock Price = $27.30**

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