Question

Innovative Components is a manufacturer of computer parts. The company recently reported earnings of $2,014,802. In addition, Innovative Components has 402,500 shares issued and outstanding. The company has a PE ratio of 24.6. Innovative Components is part of the computer parts industry which has an industry PE ratio of 25.6. Using industry information, estimate the intrinsic value of Innovative Components’ equity per share? A) $ 5.01 B) $ 64.08 C) $128.15 D) $123.14

Answer 1

C) $128.15

Step-by-step explanation:

The computation of the intrinsic value of Innovative Components’ equity per share is shown below:

= Retained earnings ÷ number of shares issued × PE ratio

= $2,014,802 ÷ 402,500 shares × 24.6

= $128.15

We simply applied the above formula so that the intrinsic value of Innovative Components’ equity per share could come

and ignored the company PE ratio of 24.6