Lightbridge corporation has 500,000 shares of common stock that currently trade for $40 per share. The net income reported for last year is $2,000,000. Their expansion is expected to continue, and they estimate that at the end of this year their income will be $3,250,000. In this coming year they will need extra financing and expect to issue an additional 150,000 shares of common stock. Thus, one year from now the company will have 650,000 common shares outstanding. 1)Assuming the company’s price to earnings ratio remains at its current level, what will be the company’s stock price one year from now? 2)The PE ratio is a very common method used by investors to get a quick calculation on the market’s perception of a company. Evaluate the formula used to calculate the PE ratio focusing on the limitations of this method of valuation?
Lightbridge corporation has 500,000 shares of common stock that currently trade for $40 per share. The net income reported for last year is $2,000,000. Their expansion is expected to continue, and they estimate that at the end of this year their income will be $3,250,000. In this coming year they will need extra financing and expect to issue an additional 150,000 shares of common stock. Thus, one year from now the company will have 650,000 common shares outstanding.
1)Assuming the company’s price to earnings ratio remains at its current level, what will be the company’s stock price one year from now?
2)The PE ratio is a very common method used by investors to get a quick calculation on the market’s perception of a company. Evaluate the formula used to calculate the PE ratio focusing on the limitations of this method of valuation?
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