Question

Ferrell Inc. recently reported net income of $9 million. It has 630,000 shares of common stock, which currently trades at $29 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $13.05 million. Over the next year, it also anticipates issuing an additional 220,500 shares of stock so that 1 year from now it will have 850,500 shares of common stock. Assuming Ferrell's price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

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	Computation of current PE ratio
	Earning	$       9,000,000
	Number of share	630000
	EPS	14.29
	Share price	$              29.00
	P/E ratio=29/14.29	2.03
	Computation of after 1 year share price (Assuming same PE ratio)
i	Earning	13,050,000
ii	Number of share	850,500
iii=i/ii	Earning per share	15.34
iv	PE ratio	2.03
v=iii*iv	New share price	31.15
	Hence, new share price =	$              31.15