Ferrell Inc. recently reported net income of $3 million. It has 210,000 shares o
ID: 2814631 • Letter: F
Question
Ferrell Inc. recently reported net income of $3 million. It has 210,000 shares of common stock, which currently trades at $21 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $3.6 million. Over the next year, it also anticipates issuing an additional 52,500 shares of stock so that 1 year from now it will have 262,500 shares of common stock. Assuming Ferrell's price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent.
Explanation / Answer
current EPS = 3,000,000/210,000 shares
= 14.2857 per share
Current Price/earnings ratio = 21/14.2857 = 1.47
Year1 EPS = 3,600,000 /262,500= 13.7143
Stock price 1 year = 13.7143*1.47 =$20.16
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