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We want to compute the EPS and price of Pabon
We want to compute the EPS and price of Pabon. It has 2 m shares outstanding and $80 of book value of equity. Pabon expects to sell $20m worth of sales and have EAT of $5m and keep 40% of its profit. Furthermore, it has $100m of assets. Its coe is .12 and its bheta is 1.2. Calculate Pabon's price and EPS.
Expert Solution
Computation of EPS:
EPS = Earning after Tax / Number of Shares Outstanding
Here,
Earning after Tax = $5,000,000
Number of Shares Outstanding = 2,000,000 shares
EPS = $5,000,000/2,000,000 = $2.50 per share
Computation of Price of Pabon:
Cost of Equity = Earning Per Share/Market Price per Share
0.12 = $2.50/Market Price per Share
Market Price per Share = $2.50/0.12 = $20.83
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