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18 November, 10:03

Flex Co. just paid total dividends of $1,075,000 and reported additions to retained earnings of $3,225,000. The company has 715,000 shares of stock outstanding and a benchmark PE of 17.3 times. What stock price would you consider appropriate?

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  1. 18 November, 10:30
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    The appropriate stock price is $103.97

    Explanation:

    Given Dividends $1 075 000 Retained Earnings $3 225 000, Shares 715 000

    PE ratio 17.3, SP?

    The PE ratio is a measure of stock price relative to earnings

    PE = SP/EPS

    So we need to calculate earnings per share in order to get stock price

    EPS = Earnings / number of shares

    Retained earnings = Net Income - dividends so to get net income we add dividends to retained earnings (Earnings and net income are the same thing)

    =$4 300 000

    EPS = 4300000/715000

    =$6.01

    plug in the values in PE ratio formula

    17.3 = SP / 6.01

    SP = 17.3*6.01

    SP = $103.97
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Home » Business » Flex Co. just paid total dividends of $1,075,000 and reported additions to retained earnings of $3,225,000. The company has 715,000 shares of stock outstanding and a benchmark PE of 17.3 times. What stock price would you consider appropriate?
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