Tartan Corporation has the following 10-year data:
Number of common shares outstanding ....... 1,000,000
Average annual earnings ............. $2,635,000
Average market price of the common stock ....... $20/share
a. Securities analysts think Tartan will earn $5 million next year and have 1,200,000 common shares outstanding. What price do you expect for its common stock next year? Begin your answer by calculating a P/E ratio.
b. Calculate the market-to-book ratio using your answer to part (a) and assuming a book value of $10 a share.
c. If the price of Tartan’s stock is currently $30 a share, explain if you think it’s a good buy.

  • CreatedMarch 19, 2015
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