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Homework answers / question archive / Other than dividend growth model, we can employ Market Multiple Analysis method for stock valuation

Other than dividend growth model, we can employ Market Multiple Analysis method for stock valuation

Finance

Other than dividend growth model, we can employ Market Multiple Analysis method for stock valuation. We suppose a firm's estimated earnings per share is $3. The average price to earnings (P/E) ratio for similiarly traded firms is 10. What's the firm's expected stock price?

 

$30

$13

$60

$120

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Computation of Firm's Expected Stock Price:

Price to Earnings (P/E) Ratio = Stock Price/Earning per Share

10 = Stock Price / $3

Stock Price = 10*$3

Stock Price = $30

 

Firm's Expected Stock Price is $30. So, the correct option is 1st "$30".

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