Answer:
$105.60
Explanation:
Given: Total dividend paid= $1100000.
Retained earning= $3300000.
Number of outstanding shares= 725000.
PE ratio= 17.4 times.
First finding earning per share.
Formula; [tex]EPS= \frac{(paid\ dividend+ additional\ retained\ earning)}{number\ of\ outstanding\ shares}[/tex]
⇒ [tex]EPS= \frac{(1100000+3300000)}{725000}[/tex]
⇒ [tex]EPS= \frac{4400000}{725000}[/tex]
∴ [tex]EPS= \$ 6.0689 \approx \$ 6.07[/tex]
Hence, earning per share (EPS)= $6.07.
Now, finding the appropriate stock price.
Price of stock= [tex]EPS\times PE[/tex]
⇒ Price of stock= [tex]\$ 6.07\times 17.4[/tex]
∴ Price of stock= [tex]\$ 105.60[/tex]
Hence, $105.60 would be the appropriate price of stock.
