Question

Coca-Cola has expected EPS of $2.1. Its competitors have the following P/E ratios: Dr Pepper Nestle Pepsico P/E ratio 22.07 23.49 21.37 Part 1 1 Attempt 1/10 for 10 pts. What is the intrinsic value based on the lowest P/E ratio? 1+ decima Submit Part 2 1 | Attempt 1/10 for 10 pts. What is the intrinsic value based on the highest P/E ratio? 1+ decima Submit Part 3 Il Attempt 1/10 for 10 pts. What is the intrinsic value based on the average P/E ratio? 1+ decima Submit

Answer 1

P/E Ratio = P)/EPS. Where P= Price per share and EPS= Earnings Per Share.

Given that Expected EPS of Coca Cola= $2.1

Part 1. Lowest P/E Ratio reported is 21.37 of Pepsico. Based on this, P/$2.1= 21.37

Therefore, Intrinsic value based on lowest P/E Ratio    = 21.37*$2.1 = $44.88

Part 2. Highest P/E Ratio reported is 23.49 of Nestle. Based on this, P/$2.1 = 23.49

Therefore, intrinsic value based on highest P/E Ratio = 23.49*$2.1 = $49.33

Part 3: Average P/E Ratio = (22.07+23.49+21.37)/3 = 22.31 Based on this, P/$2.1= 22.31

Therefore Intrinsic value based on average P/E Ratio = 22.31*$2.1 = $46.85