Five years ago Samad Corp. earned $1 million, has had an earnings growth rate of 10%, and with a price-earnings ratio of 15, the company's stock now has a market value of $2.25 million.

Question

Quizplus · Accepted Answer

Given the earnings growth rate of 10% over 5 years, the earnings now would be $1 million * (1 + 0.10)^5 = $1.61051 million. With a P/E ratio of 15, the market value should be 15 * $1.61051 million = $24.15765 million, not $2.25 million.

Five Years Ago Samad Corp