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Last year, Rec Room Sports reported earnings per share of $9.10 when its stock price was $282.10. This year, its earnings increased by 20 percent. If the P/E ratio remains constant, what is likely to be the price of the Stock? (Round your answer to 2 decimal places.)

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Cricetus

Answer:

The correct answer is "$338.52".

Explanation:

The given values are:

Market price,

= $282.10

Earning per share,

= $9.10

Earning increased,

= 20%

As we know,

⇒  [tex]PE \ ratio=\frac{Market \ price}{Earning \ per \ share}[/tex]

On substituting the given values, we get

⇒                  [tex]=\frac{282.10}{9.10}[/tex]

⇒                  [tex]=31[/tex]

Current year earnings,

=  [tex]9.10\times 120 \ percent[/tex]

=  [tex]10.92 \ per \ share[/tex]

Thus,

⇒ [tex]31=\frac{Market \ price}{10.92}[/tex]

⇒ [tex]Market \ price = 31\times 10.92[/tex]

⇒                        [tex]=338.52[/tex] ($)

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