Question

A firm has a stock price of $60.00 per share. The firm's earnings are $60 million, and the firm has 20 million shares outstanding. The firm has an ROE of 10% and a plowback of 70%. What is the firm's PEG ratio?

Answer 1

Answer:

the PEG ratio is 2.85

Explanation:

The computation of the firm PEG ratio is shown below:

Before that following calculations need to be done

Earnings per share = Earnings ÷Number of shares outstanding

 = ($60 million ÷ 20 million shares )

= $3

Now

Growth rate = ROE × Plowback ratio

= 0.10% × 0.70%

= 7%

Now

PE ratio = Current price ÷ EPS

= $60 ÷ $3

= 20

And, finally

PEG ratio is

= (Current price ÷ EPS) ÷ Growth rate

= (20  ÷ 7)

= 2.85

hence, the PEG ratio is 2.85