Answer:
1. $29.19
2. 8.27
3. Yes
4. The Companies with high research and development (R&D) expenses tend to have high P/E Ratios is the statement that is TRUE
Explanation:
1. Calculation for what the company’s management expect its stock price to be one year from now
First step is to calculate for the Current situation using this formula
Earnings per Share = Net Income / Shares Outstanding
Let plug in the formula
Current Earnings per Share = 9,000,000 / 5,500,000
Current Earnings per Share = $1.63
Second is to calculate for the Current P/E
Current P/E Ratio = 34 per share / 1.63
Current P/E Ratio = 20.85 times
Third step is to calculate for the Proposed Situation:
Proposed Net Income = $9,000,000 * 1.25
Proposed Net Income = $11,250,000
Fourth step is to calculate for the Proposed Earnings per Share
Proposed Earnings per Share = $11,250,000 / 8,000,000
Proposed Earnings per Share = $1.40
Last step is to find the P/E Ratio using this formula
P/E Ratio = Price per Share / Earnings per Share
Let plug in the formula
20.85 = Price per Share / 1.40
Price per Share =$20.85×$1.40
Price per Share= $29.19
Therefore what the company’s management expect its stock price to be one year from now will be $29.19
2. Calculation for Cold Goose’s market-to-book (M/B) ratio
Using this formula
Market to Book Ratio (M/B) = Market Value / Book Value
First step is to find the Market value
Market Value = $48.36 per share× 8,000,000
Market Value = $386,880,000
Second step is to calculate for the Market to Book Ratio (M/B) using this formula
Market to Book Ratio (M/B) = Market Value / Book Value
Let plug in the formula
Market to Book Ratio (M/B) = $386,880,000 / $46,768,000
Market to Book Ratio (M/B) = 8.27
Therefore Cold Goose’s market-to-book (M/B) ratio is 8.27
3. Yes a company’s shares can exhibit a negative P/E ratio in a situation where the Company incur a net loss.
4. The statements that is TRUE about market value ratios is :
The Companies with high research and development (R&D) expenses tend to have high P/E Ratios.
