Fontaine Inc. recently reported net income of $9 million. It has 310,000 shares

Question

Fontaine Inc. recently reported net income of $9 million. It has 310,000 shares of common stock, which currently trades at $55 a share. Fontaine continues to expand and anticipates that one year from now its net income will be $14.85 million. Over the next year it also anticipates issuing an additional 46,500 shares of stock, so that one year from now it will have 356,500 shares of common stock. Assuming its price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Round your answer to two decimal places.

Explanation / Answer

Current earnings per share = $9000000/310,000 = $29.03 Current price/earnings ratio = $55 /29.03 = 1.89 Next year, earnings per share = $14800000/356,000 = 41.71 Price/ EPS = 1.89 Price = 1.89*41.71 = $79.02

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