Velocity Company estimates the following for the next year, when common stock is expected to trade at a price-earnings ratio of 7. Earnings before interest and taxes $45 million Interest expense $5 million Effective income tax rate 30% Preferred stock dividends $10 million Common shares outstanding 2 million Common stock payout ratio 25% What is Velocity's approximate expected common stock market price per share next year?
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Ответ:
$63
Explanation:
The computation of the expected common stock market price per share for the next year is shown below:
Price earning ratio = Share price ÷ earning per share
where
Price earning ratio is 7
Earning per share is
= (Net income - preference dividend) ÷ number of common shares outstanding
= {($45 million - $5 million) × (1 - 0.30) - $10 million)} ÷ 2 million shares
= $9
Now placing these values to the above formula
So, the expected common stock market price is
= 7 × $9
= $63
Ответ:
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