You expect Coca-Cola to have earnings per share of $3.8 over the coming year. If the average P/E ratio for the beverage soft-drink sub-industry is 15, the value of a share of Coca-Cola stock based upon the comparables approach is closest to? (Round your answer in dollars to 2 decimal places, e.g. put 1204.42 if your answer is 1204.4243.)
Question
You expect Coca-Cola to have earnings per share of $3.8 over the coming year. If the average P/E ratio for the beverage soft-drink sub-industry is 15, the value of a share of Coca-Cola stock based upon the comparables approach is closest to? (Round your answer in dollars to 2 decimal places, e.g. put 1204.42 if your answer is 1204.4243.)
Solution
To calculate the value of a share of Coca-Cola stock based on the comparables approach, you would multiply the expected earnings per share by the average P/E ratio for the beverage soft-drink sub-industry.
Here's the step-by-step calculation:
- Expected earnings per share (EPS) of Coca-Cola: $3.8
- Average P/E ratio for the beverage soft-drink sub-industry: 15
Multiply the EPS by the P/E ratio:
57
So, the value of a share of Coca-Cola stock based on the comparables approach is closest to $57.00.
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