Two firms each have reported eps of 5 per share firm a has, Ask an Expert

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Two firms each have reported EPS of $5 per share. Firm A has reported that 80% of their earnings are “permanent” earnings, while 20% are one-time “transitory” earnings. Firm B has reported that 60% of their earnings are “permanent” earnings, while 20% are one-time “transitory” earnings and 20% are a current-year impact of an accounting change. For both firms an appropriate cost of capital is 20%.

Calculate the implied share price of Firm A

a. $21 (correct answer, not sure why)

b. $25

c. $30

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91621007

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