At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Next year, Tangshan is projecting that it will have net income of $1.5 million. If the average P/E multiple in Tangshan's industry is 15, what should be the price of Tangshan's stock?
A) $15.00
B) $22.50
C) $52.50
D) $75.00

Question

Quizplus · Accepted Answer

The projected earnings per share (EPS) is $1.5 million / 1,000,000 shares = $1.50. Using the industry P/E multiple of 15, the stock price should be 15 * $1.50 = $22.50.

At Year End, Tangshan China Company Balance Sheet Showed Total