Question

Becker Products is a manufacturer and distributor numerous food products. The company recently reported earnings per share of $5.50. Based on its recent price of $85.30 the company has a PE ratio of 15.5. Becker Products is part of the food processing industry which has an industry PE ratio of 19.75. Using industry information, estimate the intrinsic value of Becker Products’ equity per share?

Answer 1

$108.63

Step-by-step explanation:

PE ratio of industry=Share price/EPS

19.75*5.5=Share price

Share price =$108.63

Answer 2

The intrinsic value = $469.15

Step-by-step explanation:

The price earning (P/E) ratio can be used to determine the price of a stock. This is done as follows:

Price = EPS × P/E ratio

It is appropriate to use the industry average price-earning ratio for the purpose of this valuation.

The intrinsic value = 19.75 × $5.50 = $469.15