An analyst has determined that the intrinsic value of VM CORP stock is $20 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 25, then it would be reasonable to assume the expected EPS of VM CORP in the coming year is
A) $3.63.
B) $4.44.
C) $0.80.
D) $22.50.

Question

Quizplus · Accepted Answer

The capitalized earnings model calculates intrinsic value as EPS multiplied by the P/E ratio. Given an intrinsic value of $20 and a P/E ratio of 25, the expected EPS is $20 / 25 = $0.80.

An Analyst Has Determined That the Intrinsic Value of VM