Lane Inc. just reported net income of $3,200,000, and its current stock price is

Question

Lane Inc. just reported net income of $3,200,000, and its current stock price is $33 per share. Lane is forcasting $4,000,000 in net income next year, but t also expects it will hae to issue 300,000 shares of stock (raising its shares outstanging from 1,500,000 to 1,800,000). If Lane's forcast turns out to be right, and its price/earnings (P/E) ratio does not change, what does Lane expect it stock price to be one year from now?

a) $34.48

b) $39.29

c) $32.26

d) $35.48

e) $34.38

**Can I see the steps taken to get this problem? This is a subject I'm struggling in and want to understand better.

Explanation / Answer

ans: E)34.38

P/E = (33* 1,500,000)/3,200,000

P/E = 15.468

15.468= (x * 1,800,000)/4,000,000
15.468 = 0.45x
x = $34.373 or 34.38

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