Question

This is a fill in the blank question. Show your answer to the nearest cent/penny. DO NOT INCLUDE THE DOLLAR SIGN.  Show onlyt he numerical value (for example 30.23)

Meckrosoft 's total net income this year is expected to be $2,500,000 this year. The company has 1,200,000 common share outstanding. The current stock price for Meckrosoft is $20 per share.

Assume the the company's P/E remains the same going forward and the company is expect d to earn $2.65 per share next year what do you expect the stock price to be 12 months from now.

Answer 1

Given:

Net Income this year = $2,500,000

Total shares outstanding = 1200000

Current stock price = $20 per share

Now, Earning per share = Net Income/Total shares outstanding

Earnings per share = 2500000/1200000 = $2.08

So, P/E ratio = Price per share/ Earnings per share

P/E Ratio = 20/2.08 = 9.60

As per the given information , the company's P/E remain the same going forward.

Earning per share next year = $2.65 per share

P/E ratio = Price per share/Earning per share

9.60 = Price per share/2.65

Price per share = $25.44

So, Stock price 12 months from now = $25.44 per share