Zorba's is a small chain of of restaurants whose stock is not publicly traded.The average P/E ratio for similar restaurant chains is 16.5;the P/E ratio for the S&P 500 Index is 15.2.This year's earnings were $1.10 per share;next's earnings are expected to be $1.21 per share.A reasonable price for a share of Zorba's stock is:
A)$19.97.
B)$18.15.
C)$20.23.
D)$16.72.

Question

Quizplus · Accepted Answer

To find a reasonable price for Zorba's stock, use the average P/E ratio for similar restaurant chains (16.5) and multiply it by next year's expected earnings per share ($1.21): 16.5 * $1.21 = $19.97.

Zorba's Is a Small Chain of Of Restaurants Whose Stock