Question

Last year, Rec Room Sports reported earnings per share of $8.40 when its stock price was $201.60. This year, its earnings increased by 25 percent. If the P/E ratio remains constant, what is likely to be the price of the Stock?

Answer 1

Answer:

The price of the Stock to be $252

Explanation:

As per available data

Earnings per share = $8.40

Stock price = $201.60

Calculate the P/E ratio

P/E ratio = Price / Earnings per share = $201.60 / $8.40 = 24

First calculate the increased earings per share

Increased earnings per share = $8.40 x ( 1 + 25% ) = $10.5 per share

By taking the P/E ratio constant we can calculate the price of stock using increased eanring per share

P/E ratio = Price / Increased Earnings per share

24 = Price  / $10.5

Price = $10.5 x 24

Price = $252

Answer 2

A stock is a broad term that refers to any company's ownership certificates. A share, on the other hand, refers to a certain company's stock certificate.

The price of the Stock to be $252  

As per available data:-

Earnings per share = $8.40

Stock price = $201.60

Calculate the P/E ratio:-

P/E ratio = Price / Earnings per share = $201.60 / $8.40 = 24

First calculate the increased earrings per share:-

Increased earnings per share = $8.40 x ( 1 + 25% ) = $10.5 per share

By taking the P/E ratio constant we can calculate the price of stock using increased earning per share:-

P/E ratio = Price / Increased Earnings per share

24 = Price  / $10.5

Price = $10.5 x 24

Price = $252

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