STU Corporation has $3 million in earnings on $20 million in sales and has 1 million shares outstanding.Earnings per share of comparable firm 1 is $5,and earnings per share of comparable firm 2 is $2.Comparable firm 1's stock is trading for $50,and comparable firm 2's stock is trading for $28.What is the estimated stock price of STU using the method of comparables? (Use average multiples of the comparable firms when doing the calculations. )

Question

Quizplus · Accepted Answer

Comp.1 P/E = 10,Comp.2 P/E = 14,Avg.P/E = 12
STU = 12 × $3.00 (EPS)= $36.00

STU Corporation Has $3 Million in Earnings on $20 Million