SOLUTION: At year end, Ted's Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outs

Algebra ->  Finance -> SOLUTION: At year end, Ted's Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outs      Log On


   

Question 172745: At year end, Ted's Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Next year, Ted is projecting that it will have net income of $1.5 million. If the average PE multiple in Ted’s industry is 15, what should be the price of Ted’s stock?
Answer by Mathtut(3670) About Me  (Show Source):
You can put this solution on YOUR website!
you must first figure the earnings per share which would be
:
earnings(1.5million)/number of shares(1 million
:
eps=$1.5 (earnings per share)
:
a PE(price per earnings) ratio is simply what your pay in multiples above what the earnings are.....if the earnings are 1.5 dollars per share a 15 PE or multiple would be 15 times that amount
:
therefore $highlight%281.5%2815%29=22.50%29 is the price that would be paid on Ted's stock if the equaled the industry PE multiple of 15.