You are provided with the following information about Javier Corporation. Sales for the year 2009 were $500,000, the Net Profit Margin (NPM) was 15%. Analysts project sales to grow by 12% next year (that is 2010). However, because of more competition, the NPM is expected to decline by 10% for the year 2009. The expected P/E multiple for the year 2010 is 22. The total number of shares outstanding is 20,000. Use the earnings multiplier model to calculate the expected price for Javier Corporation in the year 2010.
A) $74.25
B) $61.6
C) $82.5
D) $83.16
E) $101.64

Question

Quizplus · Accepted Answer

The price is calculated as follows
Sales for 2010 = 500,000(1.12) = 560,000
New NPM = .15(1 - .1) = .135
2010 NPM = 560,000(.135) = 75,600
EPS = 75,600/20,000 = $3.78
Price = 3.78(22) = $83.16

You Are Provided with the Following Information About Javier Corporation