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 increases by 10 cents, and the stock price consistently sells at 20 times earnings, then the new market price would be 20 times the increased EPS, which would be $4 per share (20 x 0.20), resulting in an increase of $2 per share ($4 - $2). Therefore, choice B is the most likely effect.

The Common Stock of Securetech Corporation Consistently Sells at a Market