CMA Final · Strategic Financial Management · Equity and Bond Valuation and Evaluation of Performance
A stock has an expected EPS of Rs 12 next year. The industry justified P/E ratio is 10. What is the estimated value per share using the P/E approach?
The estimated value is Rs 120 per share, because the price-earnings approach multiplies expected earnings per share of Rs 12 by the justified multiple of 10.
- ARs 1.20
- BRs 22
- CRs 120Correct
- DRs 12
Explanation
Value = expected EPS x P/E = 12 x 10 = Rs 120. Rs 22 adds instead of multiplying; Rs 1.20 divides.
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