Question

29. Miller's Farm has 120,000 shares of stock outstanding, sales of $850,000, and net income of $55,000. Financial analysts believe the price-earnings ratio for this firm should be 15.8. Given this information, what should be the current stock price?
A. $7.24

B. $8.87 C. $14.85 D. $14.57 E. $15.21

30. The Retail Box has an historical P/CF ratio of 21.5. The current CFPS is $1.42 and the projected CFPS growth rate is 5.6 percent. The current EPS is $1.02. What is the expected price of this stock one year from now?
A. $30.53

B. $32.24 C. $32.88 D. $34.11 E. $34.20

Answer 1

29. Answer = A. $7.24

Computation of current stock price -

Stock outstanding = 120,000

Net income = $55,000

P/E ratio = 15.8

30. Answer = B. $32.24

Computation of expected stock price -

Historical P/CF ratio = 21.5

Current CFPS = $1.42

CFPS growth rate = 5.6% = 0.056

Projected CFPS = Current CFPS x (1 + CFPS growth rate) = 1.42 x (1 + 0.056) = 1.42 x 1.056

Projected CFPS = 1.49952