Question

The Blooming Flower Co. has earnings of $3.68 per share. a. If the benchmark PE for the company is 18, how much will you pay for the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. If the benchmark PE for the company is 21, how much will you pay for the stock?

Answer 1

a) $66.24

b) $77.28

Step-by-step explanation:

The price to earnings ratio (PE ratio) is a valuation used by investors to determine if a stock is overvalued or undervalued.

Payment for stock is the product of Benchmark PR ratio and earnings per share.

Given that the earnings per share is $3.68 per share

a) If the benchmark PE for the company is 18

Payment for stock = Benchmark PR ratio × earnings per share = 18 × $3.68 per share = $66.24

a) If the benchmark PE for the company is 21

Payment for stock = Benchmark PR ratio × earnings per share = 21 × $3.68 per share = $77.28