Zorba's is a small chain of restaurants whose shares are not publicly traded.The average P/E ratio for similar restaurant chains is 16.5; the P/E ratio for the S&P 500 Index is 15.2.This year's earnings were $1.21 per share and next year's earnings are forecasted at $1.46 per share.A reasonable price for a share of Zorba's shares is [blank].

Question

Quizplus · Accepted Answer

A reasonable price for Zorba's shares can be estimated using the average P/E ratio for similar restaurant chains, which is 16.5. Using next year's forecasted earnings of $1.46 per share, the estimated price is 16.5 * $1.46 = $24.09, which is closest to $24.

Zorba's Is a Small Chain of Restaurants Whose Shares Are