Given the following assumptions about a company financial estimates, calculate the P/E ratio, and determine whether the stock is undervalued or overvalued. 抯
Which of the following statements is most correct? The P/E ratio is:
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A. B. C. D.A
First, determine the value of the stock. Then, compare your calculation to the current market price. The assumptions lead us to use the P/E (earnings multiplier) and EPS to calculate the value.
Step 1: Estimate the P/E ratio -
Step 2: Estimate Earnings Per Share (given at $2.75)
Step 3: Calculate value -
Step 4: Determine under/over valuation
Since the market value is greater than the estimated value, the stock is overpriced.