FIN 571 TUTOR Career Path Begins/fin571tutor.com FIN 571 TUTOR Career Path Begins/fin571tutor.com | Page 38
Please complete the following problems. When calculating earnings per
share and PE ratios, please show your work. This problem is similar to the
examples shown in the lecture.
You manufacture hunting pack systems in China for 80 dollars each,
including shipping. The manufacturing costs only include variable costs.
Variable costs are not calculated as a percentage of sales in this case.
Sales are a function of the number of packs sold and the price per pack.
Likewise, variable costs are a function of the number of packs sold and the
cost to produce each pack. You sell these packs to retailers for 200 dollars
each. In the current year you will sell 100,000 packs. Your fixed costs
including such items as insurance, marketing, travel, shows, office
supplies, warehouse rentals etc. totals 5 million dollars this year and are
not part of the 80 dollars per pack manufacturing cost. The federal income
tax rate for your company is 40 percent.
Your company is publicly traded on the NASDAQ with 1,000,000 shares
outstanding.
Please create a current income statement using the same format as found
in the lecture. (5 points)
Please calculate earnings per share. (2 points)
Please calculate the price/earnings multiple assuming that the current stock
price is 10 dollars per share. (2 points)
Create a two-year forecast of the income statement from the information
provided in problem number one. Please create three columns of data:
current year, year 2, and year 3. Assume that sales increase ten percent
per year for year's two and three. Please show the earnings per share for
each of the three years. (10 points)
3. Please estimate the stock price for year's two and three, assuming
that the current PE multiple remains constant for each of the two forecasted
years. (6 points).
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FIN 571 Week 5 Connect Problems
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1.The difference between the present value of an investment’s future cash
flows and its initial cost is the: