An analyst has determined that the intrinsic value of Dell stock is $34 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 27, then it would be reasonable to assume the expected EPS of Dell in the coming year will be
A) $3.63.
B) $4.44.
C) $14.40.
D) $1.26.

Question

Quizplus · Accepted Answer

The intrinsic value is calculated as P/E ratio multiplied by EPS. Given the intrinsic value is $34 and the P/E ratio is 27, the expected EPS is $34 / 27 = $1.26.

An Analyst Has Determined That the Intrinsic Value of Dell