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Ques – ( This is a question from BPP Revision Kit)
Corhig Co is a company that is listed on a major stock exchange. The company has struggled to maintain profitability in the last two years due to poor economic conditions in its home country and as a consequence it has decided not to pay a dividend in the current year. However, there are now clear signs of economic recovery and Corhig Co is optimistic that payment of dividends can be resumed in the future. Forecast financial information relating to the company is as follows:
b) A P/E valuation using average earnings of $3.63m would be more realistic than the P/E ratio method calculated aboveMy ques- how did they arrive at 3.63 where is it is written that 43% will increase?
The average earnings per year over the next three years = (3.0 + 3.6 + 4.3) / 3 = 3.63M
The earning are forward to increase over the period by 4.3 – 3.0 = 1.3M
This is a % increase of 1.3/3.0 = 43%
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