The current annual sales of Flower Bud, Inc.are $178,000.Sales are expected to increase by 4% next year.The company has a net profit margin of 5% which is expected to remain constant for the next couple of years.There are 10,000 shares of common stock outstanding.The market multiple is 16.4 and the relative P/E of the firm is 1.21.What is the expected market price per share of common stock for next year?

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Quizplus · Accepted Answer

The expected sales next year are $178,000 * 1.04 = $185,120. The expected net profit is 5% of $185,120, which is $9,256. The earnings per share (EPS) is $9,256 / 10,000 shares = $0.9256. The P/E ratio is 16.4 * 1.21 = 19.844. The expected market price per share is 19.844 * $0.9256 = $18.37.

The Current Annual Sales of Flower Bud, Inc