Global Warning's EPS for the current year is $2.75 and its current P/E ratio is 50. You have forecasted that EPS will grow by 10% but the P/E ratio will fall to 40. What do you expect the price of a share of GW's stock to be at the end of next year?
A) $110
B) $121
C) $137.50
D) $151.25

Question

Quizplus · Accepted Answer

First, calculate the forecasted EPS for next year: $2.75 * (1 + 10%) = $3.025. Then, use the forecasted P/E ratio to find the expected stock price: $3.025 * 40 = $121.

Global Warning's EPS for the Current Year Is $2