Solution:
The formula for calculating the Price Earnings ratio or P/E Ratio is :
P / E Ratio = (Market price or Intrinsic Price / Earnings per share)
As per the information given in the question we have
P / E Ratio = 12 ; Earnings per share = $ 1.35
Applying the above information in the formula we have
12 = Intrinsic Price / $ 1.35
12 * $ 1.35 = Intrinsic Price
Intrinsic Price = 12 * $ 1.35
Intrinsic Price = $ 16.20
Thus the intrinsic price of Gap's stock = $ 16.20
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