High School

The average P/E (price-to-earnings) ratio for companies in a particular industry is 35.9. You are looking to value a firm in that industry, which does not yet pay dividends. The company's earnings this year are expected to be $21,100,000, and the stock has 14,300,000 shares outstanding. What would be a good estimate for the value of a share of this company's stock?

A. $1.48
B. $35.90
C. $52.97
D. $63.63
E. $513.37
F. $757.49

Answer :

To estimate the value of a share of this company's stock, we can use the P/E ratio and the company's earnings. The P/E ratio is a measure of how much investors are willing to pay for each dollar of earnings.



First, we calculate the company's earnings per share (EPS) by dividing the earnings by the number of shares outstanding:
EPS = Earnings / Shares Outstanding
EPS = $21,100,000 / 14,300,000
EPS ≈ $1.475

Next, we multiply the EPS by the average P/E ratio for the industry:
Estimated Stock Value = EPS x P/E Ratio
Estimated Stock Value = $1.475 x 35.9
Estimated Stock Value ≈ $52.97

Therefore, a good estimate for the value of a share of this company's stock would be approximately $52.97.

learn more about the P/E ratio:

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