question archive Suppose that the average P/E multiple in the healthcare industry is 21
Suppose that the average P/E multiple in the healthcare industry is 21
Subject:BusinessPrice:9.82 Bought3
Suppose that the average P/E multiple in the healthcare industry is 21. XYZ Imaging is expected to have an EPS of $1.50 this year. Operating margins are about 10%. The Company's operating margins and growth rates are similar to the rest of the industry. XYZs stock price was up about 5% last year. The value of XYZ Imaging stock, using a relative value approach, should be_____.
$35.55
$72.00
There is not a correct answer listed
$63.00
$31.50
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$31.50
Step-by-step explanation
If the relative approach method is used, the P/E multiple of 21 will be multiplied to EPS to get the price.
This formula is derived from the P/E multiple formula.
P/E = Price / EPS
So, the derived formula is:
Price = P/E multiple x EPS
The calculations would be:
Price = 21 x $1.50
Price = $31.50
The answer is $31.50.
