The price of a company’s share is Rs. 80 and the value of growth opportunities is Rs. 20. If the company’s capitalization rate is 15 percent, what is the earnings-price ratio? How much is earning per share?
Thanks in advance
8 Replies
Harish
(CS Executive)
(386 Points)
Replied 26 November 2009
Hi. Thanks for reply. Actually i want to know the how to arrive at answer. Please give detailed answer with the formula used.
Thanks in advance
Rakesh Kumar
(B.Com ( H ) Pursuing CA Final )
(327 Points)
Replied 26 November 2009
company capitalised its earnings per share at 15% i.e. EPS = Price of share *15% = Rs 12 per share ..therefore Earnings price ratio = EPS / Price of share 8*100 = 15% or .15:1
Harish
(CS Executive)
(386 Points)
Replied 26 November 2009
1. First you calculated EPS=80*15/100=Rs.12
2. Then, you calculated earning price ratio=EPS/price of share
Here, you put EPS=8
Why ???????????
kavitha
(SAO)
(56 Points)
Replied 27 November 2009
Value of Share = 80+20 = 100
Capitalisation Rate = 15%
EPS= 100*15/100=15
Price Earning Ratio = 15 : 1
Is it correct. If not what is correct answer
Jitendra
(Article Assisstant)
(36 Points)
Replied 27 November 2009
Value of one Share=Earning available to one Equity Share(EPS)/Capitalisation rate of Equity
Here Value of Share=80+20
and Capitalisation rate is 15%
100=EPS/15%
EPS=100*15%=15
please reply with correct answer, i am right or wrong.
Harish
(CS Executive)
(386 Points)
Replied 27 November 2009
This is the solution but still not able to understand
Earning price ratio = 0.15 [1– 20/80] = 0.15 (1– .25) = .1125 = 11.25%
Earning per share = EPS = 80 × .1125 = Rs. 9.00
kavitha
(SAO)
(56 Points)
Replied 01 December 2009
value of share = 80 (inclusive of growth value of Rs. 20)
Actual Value of share = 60
Earnings = 60*15/100=9
PER = 9/60 = 15:1
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