Green Caterpillar Garden Supplies Inc. just reported earnings after tax (also called net income) of $9,750,000, and a current stock price of $14.74 per share. The company is forcasting an increase of 25% of its after-tax income next year, but it also expects it will have to issue 2,900,000 new stock (raising its shares outstanding from 5,500,00 to 8,400,000).
1) If Green Caterpillar's forceast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does the company's management expect its stock price to be one year from now? (Round an P/E ratio calculation to four decimal places).
a. $12.08 per share
b. $14.75 per share
c. $9.06 per share
d. $15.10 per share
2) One year later, Green Caterpilla's shares are trading at $48.36 per share, and the company reports the value of its total common equity as $20,294,400. Given this information, Green Caterpillar's market-to-book (M/B) ratio is (48.04x, 19.98x, 1.22x, 29.97x) ________.
3) Can a company's hsare exhibit a negative P/E ratios? (yes or no)
4) Which of the following statements is true about market value ratios?
a) Low P/E ratios could mean that the company has a great deal of uncertainty in its future earnings.
b) High P/E ratios could mean that the company has a great deal of uncertainty in its future earnings.