On a particular date, AirCo has a share price of $77.50 and an EPS of $5.00. Its competitor, RoadCo, had an EPS of $0.80. What would be the expected share price of RoadCo on this date, if estimated using the method of comparables?
A)$12.40
B)$13.98
C)$18.39
D)$10.49

Question

Quizplus · Accepted Answer

The method of comparables involves using the P/E ratio of a similar company. AirCo's P/E ratio is $77.50 / $5.00 = 15.5. Applying this to RoadCo, the expected share price is 15.5 * $0.80 = $12.40.

On a Particular Date, AirCo Has a Share Price of $77.50