MINDTAP Cite Camer woodcralt Company just reporced ea mings are tax (also ca led
ID: 2813978 • Letter: M
Question
MINDTAP Cite Camer woodcralt Company just reporced ea mings are tax (also ca led net income) or $95,000,000, and a arrent stock price of $28.50 per share. The company is foreating an increase of 2S% for its 8r-tax income ret year, but it also expects it will have to issue 2,800,000 new shares of stock (reising its shares outstanding from 5,500,000 to 8,300,000). Ch 04: Assignment-Analysis of Financial Statements f Cute Came's forecast turns out to be correct and its price-to-earnings (/e) ratio does not charge, what does the company's management expect its stock price to be one year from now? (Round any P/E ratio calaul ation to four decimal places). O $23.62 per share O $28.50 per share O $17.72 per share O $29.53 per share One year lacer, Cute Camel's shares are trading at $54.56 per share, and the company reports the value of its total common equity as $39,209,200. Given this information, Oute Camel's market-to-book (M/B) ratio is is it possible for a company to exhlbit a negative EPS and thus a negative P/E ratio? O No O Ye Which of the following statements is true about market value ratios? Low P/E ratios could mean that the company has a great deal of uncertainty in its future earnings O Type here to search 3 4 5 6 7 8 9 awEExplanation / Answer
P/E ratio = Price of share/EPS
In current year =
Price = 28.50
EPS=95,000,000/5,500,000=17.27273
PE ratio = 28.50/17.27273=1.65
EPS= net income/total shares
Net income next year = 95,000,000*1.25=118,750,000
Shares= 8,300,000
EPS=$14.30723
Price = EPS*PE ratio=14.30723*1.5=23.62 per share
B) book value per share of equity= 39,209,200/8,300,000=4.724
Market to book value= 54.56/4.724=11.55
Yes it is possible for a company to have a negative EPS and PE ratio when net income is negative i.e. there is a loss.
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