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15 April, 02:00

Big Tree Lumber has earnings per share of $1.36. The firm's earnings have been increasing at an average rate of 2.9 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $23.40. What is the firm's PEG ratio

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  1. 15 April, 02:11
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    The firm's PEG ratio is equal to 5.93

    Explanation:

    A valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth are referred to as the 'PEG ratio' (price/earnings to growth ratio).

    Generally, a company with a higher growth rate would have a higher P/E ratio.

    PE ratio = Stock price/EPS

    = 23.4/1.36

    PE ratio = 17.205

    PEG ratio = PE ratio / Earning growth ratio

    = 17.205/2.9

    PEG ratio = 5.93
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