Question

ust paid total dividends of $725,000 and reported additions to retained earnings of $2,175,000. The company has 575,000 shares of stock outstanding and a benchmark PE of 15.9 times. What stock price would you consider appropriate

Answer 1

$80.136

Step-by-step explanation:

The formula to compute the price-earning ratio is shown below:

Price-earnings ratio = (Market price per share) ÷ (Earning per share)

where,

Price earning ratio is 15.9 times

And, the earning per share would be

= (Dividend + additions to retained earnings ) ÷ (Number of shares outstanding)

= ($725,000 + $2,175,000) ÷ (575,000 shares)

= $5.04

Now put these values to the above formula

So, the price would equal to

= 15.9 times × $5.04

= $80.136