value 1000 points Last year Rec Room Sports reported earning

value: 10.00 points Last year, Rec Room Sports reported earnings per share of $9.20 when its stock price was $294.40. This year, its earnings increased by 25 percent. If the P/E ratio remains constant, what is likely to be the price of the Stock? (Round your answer to 2 decimal places.) Price of the stock

Solution

Solution:

Last year earning per share = $9.20

Last year stock price = $294.40

Last year P/E ratio = MPS / EPS = $294.40 / $9.20 = 32 times

Current year EPS = $9.20 * 125% = $11.50

P/E ratio for current year remains constant i.e. 32 times

Likely price of the stock for current year = EPS * P/E ratio = $11.50 * 32 = $368 per share