Assume that a firm’s earnings per share (EPS) are expected to be $1.35

Assume that a firm’s earnings per share (EPS) are expected to be $1.35 next year and that analysts have determined that an appropriate forward-looking multiple is 20 times the projected earnings. What should the stock price be?

A) $11.35
B) $20.00
C) $27.00
D) $28.75

ANSWER

C
Explanation: C) Price = EPS * multiple = $1.35 * 20 = $27.00.