Ferrell Inc. recently reported net income of $8 million. It has540,000 shares of common stock, which currently trades at $21 a share. Ferrell continuesto expand and anticipates that 1 year from now its net income will be $13.2million. Over the next year, it also anticipates issuing an additional 81,000 shares ofstock so that 1 year from now it will have 621,000 shares of common stock. AssumingFerrell’s price/earnings ratio remains at its current level, what will be its stock price1 year from now?

Question

Ferrell Inc. recently reported net income of $8 million. It has
540,000 shares of common stock, which currently trades at $21 a share. Ferrell continues
to expand and anticipates that 1 year from now its net income will be $13.2
million. Over the next year, it also anticipates issuing an additional 81,000 shares of
stock so that 1 year from now it will have 621,000 shares of common stock. Assuming
Ferrell’s price/earnings ratio remains at its current level, what will be its stock price
1 year from now?

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