P/E AND STOCK PRICE Fontaine Inc. recently reported net income of $2 million. It has 500,000 shares of common stock, which currently trades at $40 a share. Fontaine contin- ues to expand and anticipates that 1 year from now, its net income will be $3.25 million. Over the next year, it also anticipates issuing an additional 150,000 shares of stock so that 1 year from now it will have 650,000 shares of common stock. Assuming Fontaine’s price/earnings ratio remains at its current level, what will be its stock price 1 year from now?
P/E AND STOCK PRICE Fontaine Inc. recently reported net income of $2 million. It has 500,000 shares of common stock, which currently trades at $40 a share. Fontaine contin- ues to expand and anticipates that 1 year from now, its net income will be $3.25 million. Over the next year, it also anticipates issuing an additional 150,000 shares of stock so that 1 year from now it will have 650,000 shares of common stock. Assuming Fontaine’s price/earnings ratio remains at its current level, what will be its stock price 1 year from now?
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 8P
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P/E AND STOCK PRICE Fontaine Inc. recently reported net income of $2 million. It has 500,000 shares of common stock, which currently trades at $40 a share. Fontaine contin- ues to expand and anticipates that 1 year from now, its net income will be $3.25 million. Over the next year, it also anticipates issuing an additional 150,000 shares of stock so that 1 year from now it will have 650,000 shares of common stock. Assuming Fontaine’s price/earnings ratio remains at its current level, what will be its stock price 1 year from now?
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