Probem 4.2 Check My Work (3 remaining) Click here to read the eBook: Market Valu

Question

Probem 4.2 Check My Work (3 remaining) Click here to read the eBook: Market Value Ratios P/E AND STOCK PRICE Ferrell Inc. recently reported net income of $2 million. It has 600,000 shares of common stock, which ourrently trades at 561 a share. Ferrell continues to expand and anticipstes now, its net income will be $3.1 mition. Over the next year, ik also anticipates Issuing Assuming Ferrel's price/earnings ratio remains at its current level, what will be its stock price an addtional 120,000 shares of stock so that 1 year from now it will have 720,000 shares of common stock bo not round Intermedlate calouiationsshares stock 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent

Explanation / Answer

Current P/E Ratio:

= $61/($2,000,000/600,000)

= 18.30

Stock price one year from now:

= Current P/E Ratio×EPS next year

= 18.30×($3,100,000/720,000)

= $78.79

Hence, stock price 1 year from now is $78.79

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