The Perfect Rose Co. has earnings of $1.95 per share. The benchmark PE for the company is 12.

Problem 8-12 Stock Valuation and PE [LO2]
The Perfect Rose Co. has earnings of $1.95 per share. The benchmark PE for the company is 12.
a.    What stock price would you consider appropriate? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b.    What if the benchmark PE were 15? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)


Explanation
Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

Using the equation to calculate the price of a share of stock with the PE ratio:

P = Benchmark PE ratio × EPS

So, with a PE ratio of 12, we find:

P = 12($1.95)
P = $23.40

And with a PE ratio of 15, we find:

P = 15($1.95)
P = $29.25