A company had net income of $3 million and the industry it’s in has a P/E...

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A company had net income of $3 million and the industry it’s in has a P/E...

A company had net income of $3 million and the industry it’s in has a P/E ratio of 10X. If the company’s P/E ratio is traditionally 25% higher than its industry’s and the company has 1 million shares of common stock issued, what is the value of the company’s stock?

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Answer 1

Answer #1

Value of Company = Earnings * PE Ratio applicablie to Company

= $ 3 M * 12.5

= $ 37.5 M

Price of STock = Value of Company / No. of Shares

= $ 37.5 M / 1 M

= $ 37.5

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Answer 2

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