Use the following information to answer the question(s) below. Company Ticker Price per Share Earnings per Share Book Value per Share Abbott Labs ABT $54.35 $3.69 $13.79 Bristol-Myers-Squibb BMY $25.45 $1.93 $7.33 GlaxoSmithKline GSK $41.3 $3.15 $6.03 Johnson & Johnson JNJ $62.6 $4.58 $18.27 Merck MRK $36.25 $3.81 $10.86 Pfizer PFE $18.30 $1.20 $8.19 Assuming that Novartis AG (NVS) has an EPS of $3.35, based upon the average P/E ratio for its competitors, Novartis' stock price is closest to: a. $43.47. b. $35.33 c. $31.86. d. $13.00. e. $44.35.
Question
Use the following information to answer the question(s) below.
Company Ticker Price per Share Earnings per Share Book Value per Share Abbott Labs ABT 3.69 25.45 7.33 GlaxoSmithKline GSK 3.15 6.03 Johnson & Johnson JNJ 62.6 18.27 Merck MRK 3.81 18.30 8.19
Assuming that Novartis AG (NVS) has an EPS of $3.35, based upon the average P/E ratio for its competitors, Novartis' stock price is closest to:
a. $43.47.
b. $35.33
c. $31.86.
d. $13.00.
e. $44.35.
Solution
To calculate Novartis' stock price based on the average P/E ratio of its competitors, we first need to calculate the P/E ratio for each competitor and then find the average.
Step 1: Calculate the P/E ratio for each competitor. The P/E ratio is calculated as the Price per Share divided by the Earnings per Share.
Abbott Labs: 3.69 = 14.73 Bristol-Myers-Squibb: 1.93 = 13.18 GlaxoSmithKline: 3.15 = 13.11 Johnson & Johnson: 4.58 = 13.67 Merck: 3.81 = 9.51 Pfizer: 1.20 = 15.25
Step 2: Calculate the average P/E ratio. The average P/E ratio is the sum of the P/E ratios divided by the number of companies.
Average P/E ratio = (14.73 + 13.18 + 13.11 + 13.67 + 9.51 + 15.25) / 6 = 13.24
Step 3: Calculate Novartis' stock price. Novartis' stock price is the product of its EPS and the average P/E ratio.
Novartis' stock price = 44.35
Therefore, the correct answer is e. $44.35.
Similar Questions
Use the following information to answer the question(s) below.CompanyTickerPriceper ShareEarningsper ShareBook Valueper ShareAbbott LabsABT$54.35$3.69$13.79Bristol-Myers-SquibbBMY$25.45$1.93$7.33GlaxoSmithKlineGSK$41.3$3.15$6.03Johnson & JohnsonJNJ$62.6$4.58$18.27MerckMRK$36.25$3.81$10.86PfizerPFE$18.30$1.20$8.19Assuming that Novartis AG (NVS) has book value per share of $20.00, based upon the average price-to-book ratio for its competitors, Novartis' stock price is closest to:a.$44.60.b.$264.80.c.$137.00.d.$95.50e.$77.60.
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