Consider the case of Niagara Corp.: lingual Corp. just reported a net income of
ID: 2741290 • Letter: C
Question
Consider the case of Niagara Corp.: lingual Corp. just reported a net income of $95, 000, 000, and its current stock price is $34.00 per share Niagara Corp. is forecasting an increase of 25% for its net income next year, but it also expects it will.' have to issue 2, 800, 000 new shares of stock (raising its shares outstanding from 5, 500, 000 to 8, 300, 000). If Niagara Corp.'s forecast turns out to be correct and its price-to-earrings (P/E) ratio does not change, what does Natural Corp. expel its stock price to be one year from now? $28.17 $34.00 $21.13 $35.21 Can a company's stock have a negative P/E ratio?Explanation / Answer
EPS => 95000000 / 5500000 => $17.27
PE RATIO => Share price / EPS
=> 34 / 17.27
PE RATIO => 1.97
NEW EPS => (95000000 +25%) / 8300000 => 14.31
New Price => Pe Ratio * EPS
=> 1.97 * 14.31
Price of a Share => $28.19 approx
Answer 2
Market book value ratio => Market value per share / Book value per share
=> 40.57 / (46762200 / 8300000)
Market book value ratio => 7.20
Answer 3
No, Company stock can not have a negative pe ratio.
Answer 4
Companies with high research and development expenses tend to have high P/E ratios beacuse high expenses will reduce EPS and in turn itr will increase PE RATIO.