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alexgriva [62]
3 years ago
12

Shoe Barn Inc. is a privately owned firm with few investors. Investors forecast their earnings per share (EPS) to reach $2 this

coming year. The average price-to-earnings (P/E) ratio for similar companies in the S&P 500 is 12. What will the estimated intrinsic value of the Shoe Barn Inc.'s stock?
Business
1 answer:
Mariana [72]3 years ago
4 0

Answer:

$24

Explanation:

Calculation to determine What will the estimated intrinsic value of the Shoe Barn Inc.'s stock

Using this formula

Estimated intrinsic value = Earnings * P/E Ratio for the industry

Where,

EPS = $2

Industry P/E = 12

Let plug in the formula

Estimated intrinsic value= $2 * 12

Estimated intrinsic value= $24

Therefore the estimated intrinsic value of the Shoe Barn Inc.'s stock is $24

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Answer:

1. The corrected gross profit are as follows:

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2-a  Gross profit percentage before and after correction are as follows:  

Particulars                2015     2016       2017      2018

Before correction      32%       33%        31%        32%

After correction         32%       32%        32%        32%

2-b. Yes. This is because the gross profit percentage for the years are approximately the same at 32% after the correction was made.

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

Partial income statements for Sherwood Company summarized for a four-year period show the following:

                          2015             2016                  2017                  2018

Net Sales     $2,200,000   $2,600,000    $2,700,000      $3,200,000

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An audit revealed that in determining these amounts, the ending inventory for 2016 was overstated by $22.000. The inventory balance on December 31, 2017, was accurately stated. The company uses a periodic inventory system.

Required: 1. Restate the partial income statements to reflect the correct amounts, after fixing the inventory error, 2-a. Compute the gross profit percentage for each year (a) before the correction and (b) after the correction 2-b. Does the pattern of gross profit percentages lend confidence to your corrected amounts?

The explanation of the answer is now given as follows:

1. Restate the partial income statements to reflect the correct amounts, after fixing the inventory error

Note: See the attached excel file for the fixing the inventory error and the restated partial income statements to reflect the correct amounts, after fixing the inventory error.

The effect of the overstatement of closing inventory is reducing the 2016 cost of goods sold. To correct this in the attached excel file, the opening balance is reduced by $22,000 and this makes cost of goods sold of 2016 to increase and the cost of goods sold of 2017 to decrease by $22,000.

2-a. Compute the gross profit percentage for each year (a) before the correction and (b) after the correction

Note: See the attached excel file for the computed the gross profit percentage for each year (a) before the correction and (b) after the correction.

In the attached excel file, the following formula is used:

Gross Profit percentage = Gross profit / Net Sales) * 100

2-b. Does the pattern of gross profit percentages lend confidence to your corrected amounts?

Yes. This is because the gross profit percentage for the years are approximately the same at 32% after the correction was made.

Download xlsx
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