Macoun Co.'s most recent EPS were $3.25 and they are expected to grow at a rate of 5% for the near future.The stock currently sells for $48.75.What is the price to forecasted earnings ratio?

Question

Quizplus · Accepted Answer

The price to forecasted earnings ratio (P/E ratio) can be calculated by dividing the current stock price by the forecasted EPS.

Forecasted EPS = Current EPS x (1 + Growth rate)
Forecasted EPS = $3.25 x (1 + 0.05) = $3.413

P/E Ratio = Stock price / Forecasted EPS
P/E Ratio = $48.75 / $3.413 = 14.29

Therefore, the best choice is B with a P/E ratio of 14.29.

Macoun Co'S Most Recent EPS Were $3