Question

The Carlton Corporation has 5 million in earnings after taxes and 2 million shares outstanding. The stock trades at a P/E of 20. The firm has 4 million in excess cash. What is the market price per share of the Carlton Corporation?

1) 10
2) 15
3) 20
4) 25

Answer 1

The market price per share of the Carlton Corporation is $50.

Step-by-step explanation:

To find the market price per share of the Carlton Corporation, we need to divide the earnings after taxes by the number of shares outstanding. The earnings after taxes are $5 million and the number of shares outstanding is 2 million. So, the earnings per share is $2.50 ($5 million / 2 million). The P/E ratio is given as 20, which represents the price per earnings. Therefore, the market price per share of the Carlton Corporation is $50 ($2.50 x 20).