Fontaine Inc. recently reported net income of $6 million. It has 630,000 shares
ID: 2649341 • Letter: F
Question
Fontaine Inc. recently reported net income of $6 million. It has 630,000 shares of common stock, which currently trades at $61 a share. Fontaine continues to expand and anticipates that 1 year from now, its net income will be $10.2 million. Over the next year it also anticipates issuing an additional 252,000 shares of stock so that 1 year from now it will have 882,000 shares of common stock. Assuming Fontaine's price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Round your answer to the nearest cent.
Explanation / Answer
PE ratio= MPS/EPS
MPS=61
EPS=Earnings/ No of shares=6000000/630000= 9.52
PE ratio=61/9.52= 6.41
Now, EPS=10200000/882000=11.56
6.41=MPS/11.56
MPS+6.41*11.56 = $74.10
Stock Price from now is $74.10