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14 June, 03:41

Flex Co. just paid total dividends of $975,000 and reported additions to retained earnings of $2,925,000. The company has 675,000 shares of stock outstanding and a benchmark PE of 16.9 times. What stock price would you consider appropriate?

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  1. 14 June, 05:17
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    Stock price = $97.64

    Explanation:

    Earnings per share = (Dividend + addition to retained earnings) / Total number of shares

    Earnings per share (EPS) = $ (975000 + $2,925,000) / 675,000

    = $ (3900000/675000)

    = $5.777777778

    EPS = $5.777777778

    PE ratio = Stock price / EPS

    16.9 = Stock price / $5.777777778

    Stock price = 15.4 x $5.777777778

    Stock price = $97.64
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