Pinnacle Financial Management projects that earnings per share for Val

Pinnacle Financial Management projects that earnings per share for Valley Imports Inc. will increase from the current $1.75 per share to $2.00 next year.

If Pinnacle recommends a P/E ratio of 12.5 for Valley Imports, what is the recommended forward looking price for the firm?
A) $21.88 per share
B) $25.00 per share
C) $23.44 per share
D) $6.25 per share

ANSWER

B
Explanation: B) Price = EPS * multiple = $2.00 * 12.5 = $25.00.