The common stock of Securetech Corporation consistently sells at a market price of 20 times earnings .What would be the most likely effect of a 10 cent increase in Securetech's basic EPS?

Question

Quizplus · Accepted Answer

If the basic EPS of Securetech Corporation increases by 10 cents, investors are likely to be more confident in the company's future earnings potential. This could lead to an increase in demand for the stock, which could drive up its market price. Based on the information provided, the market price is typically 20 times earnings. Therefore, a 10 cent increase in EPS would lead to a $2 increase in the market price (20 times 10 cents).

The Common Stock of Securetech Corporation Consistently Sells at a Market