Legacy Industries Inc.has a historic P/E multiple of 15,a current EPS of $2.50 projected to grow by 4% in the coming year,and a forward looking P/E multiple of 18.With this information please estimate the current price of the firm's stock.
A)$37.50
B)$46.80
C)$39.00
D)$48.20

Question

Quizplus · Accepted Answer

The current price of the firm's stock can be estimated using the forward-looking P/E multiple and the projected EPS. The projected EPS is $2.50 growing by 4%, which equals $2.60 ($2.50 * 1.04). Using the forward P/E of 18, the stock price is estimated as $2.60 * 18 = $46.80.