Question

You notice that Coca-Cola has a stock price of $41.09 and EPS of $1.89. Its competitor PepsiCo has EPS of $3.90. But, Jones Soda, a small batch Seattle-based soda producer has a P/E ratio of 35. Based on this information, what is one estimate of the value of a share of PepsiCo stock?

Answer 1

Answer:

$84.79

Explanation:

For computing the value of a share of PepsiCo stock, first we have to determine the P/E ratio for Coca-cola which is shown below:

Price-earnings ratio = (Market price per share) ÷ (Earning per share)

                                   = $41.09 ÷ $1.89

                                   = $21.74

Now the value of a share for PepsiCo stock would be

= Price-earnings ratio × EPS

= $21.74 × $3.90

= $84.79

All other information which is given is not relevant. Hence, ignored it