Question

The capital structure for Cain Supplies is:



Cain Supplies

Debt @ 9% $ 100,000

Common stock, $10 par 200,000


Total $ 300,000


Common shares 20,000


Compute the stock price for Cain if it sells at 19 times earnings per share and EBIT is $50,000. The tax rate is 20 percent.

Answer 1

Answer:

Stock price is $34.16

Explanation:

Net Profit = (50,000 - 9%x 100,000)x (1-20%) = 32,800

Earnings per share = 32,800/20,000 = $1.64

19 times earnings per share = 19 x 1.64 = 31.16