Flex Co just paid total dividends of 675000 and reported add

Flex Co. just paid total dividends of $675,000 and reported additions to retained earnings of $2,025,000. The company has 555,000 shares of stock outstanding and a benchmark PE of 15.7 times. What stock price would you consider appropriate?

$57.28

$19.09

$72.56

$76.38

$68.74

Solution

Earnings per share = Net income / Number of shares outstanding

Net income = 675,000 + 2,025,000 = 2,700,000

Earnings per share = 2,700,000 / 555,000

Earnings per share = 4.864865

PE artio = price / EPS

15.7 = price / 4.864865

price = $76.38