The Sleeping Flower Co. has earnings of $1.44 per share. If the benchmark PE for
ID: 2647288 • Letter: T
Question
The Sleeping Flower Co. has earnings of $1.44 per share.
If the benchmark PE for the company is 13, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
If the benchmark PE for the company is 16, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Requirement 1:If the benchmark PE for the company is 13, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
If the benchmark PE for the company is 16, how much will you pay for the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Explanation / Answer
Price Earnings Ratio = Market Value per share / Earnings per share
Rewriting the equation we get, Market Value per share = Price Earnings Ratio * Earnings per share
EPS = $1.44
Market Value = PE Ratio * 1.44
a) PE Ratio = 13
Market Value = 13 * 1.44 = 18.72
Therefore, if the benchmark PE for the company is 13, $18.72 can be paid for the stock.
b) PE Ratio = 16
Market Value = 16 * 1.44 = 23.04
Therefore, if the benchmark PE for the company is 13, $23.04 can be paid for the stock.
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