21.2 - 24.00 48.00 EARNINGS CONTRACTED TO $1,000,000 BASE...

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    PE RATIOs   VALUATION QUESTION
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WHAT IS THE PE RATIO  (BASE CASE) NET INCOME AFTER TAX $2,000,000 SHARES OUTSTANDING 4,000,000 MARKET PRICE OF STOCK $12.00/SHARE WHAT WOULD BE THE MARKET PRICE OF THE  STOCK IF (EACH CASE IS SEPARATE) A. PE RATIO GREW TO  48 times B. EARNINGS CONTRACTED TO  $1,000,000 C. EARNINGS CONTRACTED TO  $1,000,000  AND PE  CONTRACTED TO  10x
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MATRIX FOR ANSWER NI =$1,000000 BASE CASE PE = 48X NI =$1,000000 PE = 10X EARNINGS # OF CS O/S EPS MKP PE RATIO EPS = EARNINGS/# of CS O/S PE RATIO = MKP/EPS
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PE RATIO  (BASE CASE) BASE CASE EARNINGS 2,000,000.00 $ # OF CS O/S 4,000,000.00 EPS 0.50 $ MKP 12.00 $ PE RATIO 24.00
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PE RATIO GREW TO  48 times BASE CASE PE = 48X EARNINGS 2,000,000.00 $ 2,000,000.00 $ # OF CS O/S 4,000,000.00 4,000,000.00 EPS 0.50 $ 0.50 $ MKP 12.00 $ 24.00 $ PE RATIO
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Unformatted text preview: 24.00 48.00 EARNINGS CONTRACTED TO $1,000,000 BASE CASE PE = 48X NI =$1,000000 EARNINGS 2,000,000.00 $ 2,000,000.00 $ 1,000,000.00 $ # OF CS O/S 4,000,000.00 4,000,000.00 4,000,000.00 EPS 0.50 $ 0.50 $ 0.25 $ MKP 12.00 $ 24.00 $ 6.00 $ PE RATIO 24.00 48.00 24.00 EARNINGS CONTRACTED TO $1,000,000 & PE CONTRACTED TO 10x NI =$1,000000 BASE CASE PE = 48X NI =$1,000000 PE = 10X EARNINGS 2,000,000.00 $ 2,000,000.00 $ 1,000,000.00 $ 1,000,000.00 $ # OF CS O/S 4,000,000.00 4,000,000.00 4,000,000.00 4,000,000.00 EPS 0.50 $ 0.50 $ 0.25 $ 0.25 $ MKP 12.00 $ 24.00 $ 6.00 $ 2.50 $ PE RATIO 24.00 48.00 24.00 10.00 PE RATIO COMMENTS RULE OF THUMB GROWTH = PE RATIO Example: growth of 15 = PE of 15x GROWTH = PE > 20x VALUE = PE < 20x...
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This note was uploaded on 11/13/2011 for the course CIVE 2*** taught by Professor - during the Spring '11 term at Carleton CA.

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21.2 - 24.00 48.00 EARNINGS CONTRACTED TO $1,000,000 BASE...

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