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28 September, 16:10

Flex Co. just paid total dividends of $525,000 and reported additions to retained earnings of $1,575,000. The company has 495,000 shares of stock outstanding and a benchmark PE of 15.1 times. What stock price would you consider appropriate?

a.$52.80

b.$17.60

c.$70.40

d.$63.36

e.$66.88

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Answers (1)
  1. 28 September, 16:25
    0
    Correct answer is 20.80$.

    Options given are incorrect.

    Explanation:

    Earnings per share = (Dividend + addition to retained earnings) / Total number of shares

    Earnings per share = (525000 + 1570000) / 495000

    EPS = 1.37777

    PE ratio = Stock price / EPS

    15.1 = Stock price / 1.377777

    Stock price = 15.1 x 1.37777

    Stock price = 20.80$
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