Asked by Rachel Tweedy on May 10, 2024
Verified
Suppose that the average P/E multiple in the oil industry is 20. Non-Standard Oil Corp is expected to have an EPS of $3.00 in the coming year. The intrinsic value of Non-Standard Oil Corp stock should be
A) $28.12.
B) $35.55.
C) $60.00.
D) $72.00.
E) None of the options are correct.
P/E Multiple
Price-to-Earnings ratio, a valuation metric for stocks that compares a company's market price per share to its earnings per share.
EPS
Earnings Per Share, a key financial indicator used to measure the profitability of a company, calculated as the net income divided by the number of outstanding shares.
Intrinsic Value
The inherent worth of an asset, distinct from its market value, based on its fundamental characteristics.
- Determine the inherent worth of stocks by applying a range of valuation techniques including the constant growth Dividend Discount Model, earnings capitalization, and P/E ratios.
Verified Answer
MM
Mickey MurphyMay 13, 2024
Final Answer :
C
Explanation :
The intrinsic value of Non-Standard Oil Corp stock can be calculated by multiplying the expected EPS by the average P/E multiple in the industry. Thus, $3.00 * 20 = $60.00.
Learning Objectives
- Determine the inherent worth of stocks by applying a range of valuation techniques including the constant growth Dividend Discount Model, earnings capitalization, and P/E ratios.