Answer:
2.1
Explanation:
A firm has a stock price of $68.00 pet share
The firm's earning are $85,000,000
The firm has $20,000,000 outstanding
They have an ROE of 11% and a Plow back ratio of 70%
The first step is to calculate the EPS
EPS= $85,000,000/$20,000,000
= $4.25
P/E= $68.00/$4.25
= 16
g= 11×70
= 770/100
= 7.7%
Therefore the PEG ratio can be calculated as follows
PEG ratio= 16/7.7
= 2.1
Hence the firm PEG ratio is 2.1
The PEG ratio that is the Price to Earnings Growth ratio is the ratio analytical tool that measures the expected growth in the earnings with the change in the share prices. It determines the valuation of stock amongst various other stocks.
The firms' PEG ratio is 2.1.
Computation:
Given,
Stock price =$68 per share
Total earning =$85,000,000
Outstanding balance =$20,000,000
ROE =11%
Plowback ratio =70%
[tex]\rm{PEG ratio}=\dfrac{\text{P/E}}{\text{Annual Growth rate}}\\\\=\dfrac{\$16}{7.70\%}\\\\=2.1[/tex]
Working Note:
Computation of EPS:
[tex]\rm{EPS}=\dfrac{Total \;Earning}{Outstanding\;Amount}\\\\=\dfrac{\$85,000,000}{\$20,000,000}\\\\=\$4.25[/tex]
Computation of P/E:
[tex]\rm{P/E}=\dfrac{Stock\;Price}{EPS}\\\\=\dfrac{\$68}{\$4.25}\\\\=\$16[/tex]
Computation of annual growth rate:
[tex]\rm{Annual growth rate}=ROE\;\times\;plowback\;period\\\\=11\%\;\times\;70\%\\\\=7.70\%[/tex]
To know more about ratio analysis, refer to the link:
https://brainly.com/question/14985423
