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Suppose that the average P/E multiple in the healthcare industry is 21
Suppose that the average P/E multiple in the healthcare industry is 21. XYZ Imaging is expected to have an EPS of $1.50 this year. Operating margins are about 10%. The Company's operating margins and growth rates are similar to the rest of the industry. XYZs stock price was up about 5% last year. The value of XYZ Imaging stock, using a relative value approach, should be _____.
Group of answer choices
$35.55
$72.00
There is not a correct answer listed
$63.00
$31.50
Expert Solution
THE CORRECT ANSWER IS "OPTION E ; $31.50" HERE .
Step-by-step explanation
STATEMENT SHOWING COMPUTATION OF MARKET PRICE PER SHARE
MARKET PRICE = EPS*P/E RATIO
MARKET PRICE = $1.50*21 P/E MULTIPLE
MARKET PRICE = $31.50
WHERE,
EPS = $1.50 PER SHARE
P/E MULTIPLE = 21
HENCE , THE CORRECT ANSWER IS "OPTION E ; $31.50" HERE .
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