Question

Last year, Rec Room Sports reported earnings per share of $9.10 when its stock price was $282.10. This year, its earnings increased by 20 percent. If the P/E ratio remains constant, what is likely to be the price of the Stock? (Round your answer to 2 decimal places.)

Answer 1

Answer:

The correct answer is "$338.52".

Explanation:

The given values are:

Market price,

= $282.10

Earning per share,

= $9.10

Earning increased,

= 20%

As we know,

⇒  $PE \ ratio=\frac{Market \ price}{Earning \ per \ share}$

On substituting the given values, we get

⇒                  $=\frac{282.10}{9.10}$

⇒                  $=31$

Current year earnings,

=  $9.10\times 120 \ percent$

=  $10.92 \ per \ share$

Thus,

⇒ $31=\frac{Market \ price}{10.92}$

⇒ $Market \ price = 31\times 10.92$

⇒                        $=338.52$ ($)