A company has sales of $220 million.These are expected to increase by 15 percent next year and 12 percent in the year after that.Over each of the next two years,the company expects to have a net profit margin of 8 percent,a payout ratio of 60 percent,and a constant 3 million shares of common stock outstanding.If the stock is expected to trade at a P/E ratio of 14 at the end of the second year and if the investor requires a 14 percent rate of return,what should the justified price of the stock be today?

Question

Quizplus · Accepted Answer

The Answer of A company has sales of $220 million.These are expected to increase by 15 percent next year and 12 percent in the year after that.Over each of the next two years,the company expects to have a net profit margin of 8 percent,a payout ratio of 60 percent,and a constant 3 million shares of common stock outstanding.If the stock is expected to trade at a P/E ratio of 14 at the end of the second year and if the investor requires a 14 percent rate of return,what should the justified price of the stock be today?

A Company Has Sales of $220 Million