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18 July, 21:57

balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Next year, Flintstone is projecting that it will have net income of $1.5 million. If the average P/E multiple in Flintstone's industry is 15, what should be the price of Flintstone's stock

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  1. 18 July, 22:04
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    The price per share should be $22.5

    Explanation:

    The price earnings multiple or P/E tells us how much price the investors are willing to pay for $1 earnings of the company.

    We first need to calculate the earnings per share of the company.

    Earnings per share = Net Income / Number of outstanding common shares

    Earnings per share = 1500000 / 1000000 = $1.5 per share

    Using the P/E for the industry, the price per share of Flintstone should be,

    P/E = Price per share / Earnings per share

    15 = Price per share / 1.5

    15 * 1.5 = Price per share

    Price per Share = $22.5
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