Fontaine Inc. recently reported net income of $2 million. It has 500, 000 shares
ID: 2693017 • Letter: F
Question
Fontaine Inc. recently reported net income of $2 million. It has 500, 000 shares of common stock, which currently trades at $40 a share. Fontaine continues to expand and anticipates that 1 year from now, its net income will be $3.25 million. Over the next year, it also anticipates issuing an additional 150,000 shares of stock so that one year from now it will have 650,000 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?Explanation / Answer
Current P/E ratio = 40/(2000000/500, 000 ) =10 after one year P/(3.25*1000000/650,000) = 10 P=$50 stock price 1 year from now = $50