Answer:
Hello your question is incomplete below is the complete question
Company XYZ closed at $53.02 per share with a P/E ratio of 14.02 .
Answer :
A) $3.79
B) underpriced
Explanation:
Given data:
Closing price ( price per share ) = $53.02
P/E ratio = 14.02
A ) How much earnings per share
Earnings per share = price per share / (P/E) ratio
= 53.02 / 14.02 = $3.79
B) To check if the stock is overpriced, underpriced or about right
i) At P/E ratio = 12
Earnings per share = 53.02 / 12 = $4.43
Earning yield = ( earning per share / market value ) * 100
= ( 4.43 / 53.02 ) * 100 = 8.33%
ii) At P/E ratio = 13
Earnings per share = 53.02 / 13 = $4.09
Earning Yield = ( earning per share / market value ) * 100
= (4.09 / 53.02 ) * 100 = 7.69%
iii) At P/E ratio = 14
Earnings per share = 53.02 / 14 = $ 3.8
Earnings yield = ( earning per share / market value ) * 100
= ( 3.8 / 53.02 ) * 100 = 7.14%
The average of the earning yield given P/E ratio is 12-14
= ( 8.33 + 7.69 + 7.14 ) % / 3 = 7.72%
while The earning yield given P/E ratio is 14.02
= ( earning per share / market value ) * 100
= ( 3.79 / 53.02 ) * 100 = 7.12%
Therefore the stock is underpriced
