Question: 14. If the industry average P/E ratio is 25 and the company your analyzing has a EPS of 2.14, what would you estimate to be

14. If the industry average P/E ratio is 25 and the company your analyzing has a EPS of 2.14, what would you estimate to be the appropriate stock price? If the stock was currently trading for less than that number what should you do as an investor? Price Earning Ratio = Market price per share/Earning per share Market Price per share=Price earning ratio * Earning per share = 25*2.14 = $53.50 Therefore estimated stock price is $53.50. If stock was trading for less than $53.50, then it means stock is currently undervalued. Therefore buy strategy can be used for such stock. 18. What is the Internal Rate of Return (IRR) and the Profitability Index (PI) of the project in number 14? PI = 1 + NPV/Initial investment

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