FUND. OF FINANCIAL MGMT CONCISE (LL)
9th Edition
ISBN: 9781337539319
Author: Brigham
Publisher: CENGAGE L
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 4, Problem 21P
Summary Introduction
To determine: The stock price in 1 year, if price/earnings ratio remains at its current level.
Earnings per Share (EPS):
Earnings per share, is the ratio of profit after tax and number of outstanding equity share. It is the amount earned by each equity shares of the company. Earnings per share determine the profitability of the firm in terms of equity shares.
Price Earnings Ratio (P/E Ratio):
The ratio of the earnings per share and market price of a share is called price earnings ratio. This ratio indicates that to earn one rupee, how much money an investor need to invest in that particular share.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Ferrell Inc. recently reported net income of $9 million. It has 470,000 shares of common stock, which currently trades at $47 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $12.15
million. Over the next year, it also anticipates issuing an additional 47,000 shares of stock so that 1 year from now it will have 517,000 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? Do not round intermediate calculations. Round your answer to the nearest cent.
$
P/E AND STOCK PRICE
Ferrell Inc. recently reported net income of $10 million. It has 420,000 shares of common stock, which currently trades at $51 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $14.5 million. Over the next year, it also anticipates issuing an additional 63,000 shares of stock so that 1 year from now it will have 483,000 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? Do not round intermediate calculations. Round your answer to the nearest cent
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?
Chapter 4 Solutions
FUND. OF FINANCIAL MGMT CONCISE (LL)
Ch. 4 - Financial ratio analysis is conducted by three...Ch. 4 - Prob. 2QCh. 4 - Over the past year, M.D. Ryngaert Co. had an...Ch. 4 - Profit margins and turnover ratios vary from one...Ch. 4 - How does inflation distort ratio analysis...Ch. 4 - Prob. 6QCh. 4 - Give some examples that illustrate how (a)...Ch. 4 - Why is it sometimes misleading to compare a...Ch. 4 - Suppose you were comparing a discount merchandiser...Ch. 4 - Prob. 10Q
Ch. 4 - Differentiate between ROE and ROIC.Ch. 4 - Indicate the effects of the transactions listed in...Ch. 4 - DAYS SALES OUTSTANDING Baxley Brothers has a DSO...Ch. 4 - DEBT TO CAPITAL RATIO Kayes Kitchenware has a...Ch. 4 - DuPONT ANALYSIS Hendersons Hardware has an ROA of...Ch. 4 - MARKET/BOOK RATIO Edelman Engines has 17 billion...Ch. 4 - PRICE/EARNINGS RATIO A company has an EPS of 2.40,...Ch. 4 - DuPONT AND ROE A firm has a profit margin of 3%...Ch. 4 - Prob. 7PCh. 4 - DuPONT AND NET INCOME Precious Metal Mining has 17...Ch. 4 - BEP, ROE, AND ROIC Broward Manufacturing recently...Ch. 4 - M/B AND SHARE PRICE You are given the following...Ch. 4 - RATIO CALCULATIONS Assume the following...Ch. 4 - Prob. 12PCh. 4 - TIE AND ROIC RATIOS The W.C. Pruett Corp. has...Ch. 4 - Prob. 14PCh. 4 - RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has...Ch. 4 - Prob. 16PCh. 4 - CONCEPTUAL: RETURN ON EQUITY Which of the...Ch. 4 - TIE RATIO MPI Incorporated has 6 billion in...Ch. 4 - CURRENT RATIO The Stewart Company has 2,392,500 in...Ch. 4 - DSO AND ACCOUNTS RECEIVABLE Ingraham Inc....Ch. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - RATIO ANALYSIS Data for Barry Computer Co. and its...Ch. 4 - DuPONT ANALYSIS A firm has been experiencing low...Ch. 4 - RATIO ANALYSIS The Corrigan Corporations 2015 and...Ch. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Looking at Morningstars Profitability ratios, what...Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - From the Google Finance site, look at Hewlett...Ch. 4 - From the Google Finance site, use the DuPont...Ch. 4 - Prob. 8DQ
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- FA corporation recently reported a net ncome of $2,000,000. The company has 500,000 shares of common stock that currently trade for $40 per share . The company continues to expand and anticipates that one year from now its net income will be $3.25 million. Over the next yesr the company also anticipates issuing an additional 150,000 shares ,so that one year from now the company will have 650,000 shares of common stock . a) Assuming the company's price to earnings ratio remains at its current level, what will be the company's stock price one year from now ? b) The PE ratio is a very common method used by investors to get a quick calculation on the market's perception of a company. Evaluate the fornula used to calculate the PE ration focusing on the limitations of this method of valuation ?arrow_forwardNational Inc. recently reported net income of P1,500,000. The company has 300,000 shares of common stock, and it currently trades at P65 a share. The company continues to expand and anticipates that one year from now its net income will be P2,500,000. Over the next year the company also anticipates issuing an additional 100,000 shares of stock, so that one year from now the company will have 400,000 shares of common stock. Assuming the company’s price/earnings ratio remains at its current level, what will be the company’s stock price one year from now?arrow_forwardPanhandle Industries Inc. currently pays an annual common stock dividend of $3.20 per share. The company's dividend has grown steadily over the past 12 years from $1.60 to its present level; this growth trend is expected to continue. The company's present dividend payout ratio, also expected to continue, is 50 percent. In addition, the stock presently sells at 5 times current earnings (that is, its P/E multiple is 5). Panhandle Industries stock has a beta of 1.15, as computed by a leading investment service. The present risk-free rate is 4.0 percent, and the expected return on the stock market is 12.0 percent. Do not round intermediate calculations. Round your answers to the questions below to two decimal places. a. Suppose an individual investor feels that 11 percent is an appropriate required rate of return for the level of risk this investor perceives for Panhandle Industries. Using the dividend capitalization model and the Capital Asset Pricing Model approaches, determine whether…arrow_forward
- Lightbridge corporation has 500,000 shares of common stock that currently trade for $40 per share. The net income reported for last year is $2,000,000. Their expansion is expected to continue, and they estimate that at the end of this year their income will be $3,250,000. In this coming year they will need extra financing and expect to issue an additional 150,000 shares of common stock. Thus, one year from now the company will have 650,000 common shares outstanding. Assuming the company’s price to earnings ratio remains at its current level, what will be the company’s stock price one year from now?arrow_forwardLightbridge corporation has 500,000 shares of common stock that currently trade for $40 per share. The net income reported for last year is $2,000,000. Their expansion is expected to continue, and they estimate that at the end of this year their income will be $3,250,000. In this coming year they will need extra financing and expect to issue an additional 150,000 shares of common stock. Thus, one year from now the company will have 650,000 common shares outstanding. 1)Assuming the company’s price to earnings ratio remains at its current level, what will be the company’s stock price one year from now? 2)The PE ratio is a very common method used by investors to get a quick calculation on the market’s perception of a company. Evaluate the formula used to calculate the PE ratio focusing on the limitations of this method of valuation?arrow_forwardI have just purchased 200 shares of LTC Limited preferred shares. It is currently selling for $40 per share. The annual dividend is $3.40 per share. At the same period, National System has just paid dividend of $1.00. It is estimated that the company's growth rate to be 5 percent p.a. for the next 2 years. After that, dividends are expected to grow at a rate of 10 percent p.a. indefinitely. a) What is the expected return on LTC shares? b) If my required rate of return is 8%, will you advise me to buy more shares of LTC shares or sell what I have under the market pricing? c) If I require a 12% rate of return on equity, what is my expected current price of the National System's share? d) Based on parts (b) and (c) above, explain why an investor would expect the different rate of return on the shares under consideration?arrow_forward
- • Pan Asia Mining Company’s stock (Ticker: PAMC) is trading at $22.50. • The company has forecasted net income and book value of equity for the coming year to be $1,420,200 and $11,115,000, respectively. • The company has also been paying dividends for the past 8 years and has maintained a dividend payout ratio of 45.00%. Based on this information, what will be PAMC’s growth rate in earnings and dividends? Which of the following statements accurately describes the relationship between earnings and dividends when all other factors are held constant? Growth in earnings requires growth in dividends. Long-run earnings growth occurs primarily because firms pay dividends to reward their shareholders for investing in the company. Retaining a higher percentage of earnings will result in a higher growth rate.arrow_forwardPanhandle Industries, Inc., currently pays an annual common stock dividend of $2.20 per share. The company’s dividend has grown steadily over the past 10 years at 8 percent per year; this growth trend is expected to continue for the foreseeable future. The company’s present dividend payout ratio, also expected to continue, is 40 percent. In addition, the stock presently sells at eight times current earnings— that is, its “multiple” is 8.Calculate the company’s cost of equity capital using the dividend-capitalization model approach.arrow_forwardPanhandle Industries, Inc., currently pays an annual common stock dividend of $8.80 per share. The company’s dividend has grown steadily over the past 10 years at 8 percent per year; this growth trend is expected to continue for the foreseeable future. The company’s present dividend payout ratio, also expected to continue, is 40 percent. In addition, the stock presently sells at eight times current earnings— that is, its “multiple” is 8. What is the company’s cost of equity capital? (? )%arrow_forward
- The following table gives Foust Company's earnings per share for the last 10 years. The common stock, 8.0 million shares outstanding, is now (1/1/22) selling for $63.00 per share. The expected dividend at the end of the current year (12/31/22) is 50% of the 2021 EPS. Because investors expect past trends to continue, g may be based on the historical earnings growth rate. (Note that 9 years of growth are reflected in the 10 years of data.) Year EPS Year EPS 2012 $3.90 2017 $5.73 2013 4.21 2018 6.19 2014 4.55 2019 6.68 2015 4.91 2020 7.22 2016 5.31 2021 7.80 The current interest rate on new debt is 8%; Foust's marginal tax rate is 25%; and its target capital structure is 55% debt and 45% equity. a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. % Calculate Foust's cost of common equity. Calculate the cost of equity as r; = D1/Po + g. Do not round intermediate calculations. Round your answer to two decimal places. % b. Find Foust's WACC. Do not round…arrow_forwardAtlantic Northern Inc. just reported a net income of $10,000,000, and its current stock price is $31.25 per share. Atlantic Northern is forecasting an increase of 25% for its net income next year, but it also expects it will have to issue 1,800,000 new shares of stock (raising its shares outstanding from 5,500,000 shares to 7,300,000 shares). 1. If Atlantic Northern’s forecast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does management expect its stock price to be one year from now? $29.36 per share $31.25 per share $22.02 per share $36.70 per share 2. One year later, Atlantic Northern Inc.’s stock is trading at $38.00, and the company reports its common equity value as $42,865,600. What is Atlantic Northern Inc.’s market-to-book (M/B) ratio? 3. Is it possible for a company to have a negative EPS and thus a negative P/E ratio?arrow_forwardThe following table gives Foust Company's earnings per share for the last 10 years. The common stock, 6.5 million shares outstanding, is now (1/1/22) selling for $53.00 per share. The expected dividend at the end of the current year (12/31/22) is 55% of the 2021 EPS. Because investors expect past trends to continue, g may be based on the historical earnings growth rate. (Note that 9 years of growth are reflected in the 10 years of data.) Year EPS Year 2012 $3.90 2017 EPS $5.73 2013 4.21 2018 6.19 2014 4.55 2019 6.68 2015 4.91 2020 7.22 2016 5.31 2021 7.80 The current interest rate on new debt is 9%; Foust's marginal tax rate is 25%; and its target capital structure is 50% debt and 50% equity. a. Calculate Foust's after-tax cost of debt. Round your answer to two decimal places. % Calculate Foust's cost of common equity. Calculate the cost of equity as rs = D₁/Po + g. Do not round intermediate calculations. Round your answer to two decimal places. % b. Find Foust's WACC. Do not round…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT