Assume you believe that the appropriate price/earnings ratio for a firm in one year is 18, and your estimate of future earnings at that time is $3 a share. Based on this, what price do you
Expect this firm to sell for in one year?

Question

Quizplus · Accepted Answer

To find the expected price, we can use the formula: 
Expected price = P/E ratio * Future earnings per share

Plugging in the given values, we get: 
Expected price = 18 * $3 = $54

Therefore, the best choice is C, $54.00. To calculate the expected price in one year, we can use the equation: Price = P/E ratio x Earnings per share. 
Therefore, the expected price in one year would be: 18 x $3 = $54. Therefore, the correct answer is (C).

Assume You Believe That the Appropriate Price/earnings Ratio for a Firm