An analyst has determined that the intrinsic value of IBM stock is $80 per share using the capitalized earnings model.If the typical P/E ratio in the computer industry is 22,then it would be reasonable to assume the expected EPS of IBM in the coming year is ______.

Question

Quizplus · Accepted Answer

The correct answer is A. The P/E ratio is the ratio of the stock price to the earnings per share. So, if the intrinsic value of IBM stock is $80 per share and the typical P/E ratio in the computer industry is 22, then the expected EPS of IBM in the coming year would be $80 / 22 = $3.63.

An Analyst Has Determined That the Intrinsic Value of IBM