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8 January, 22:11

Huck Finn is thinking about purchasing some stock in Mississippi Mining Company (MMC). Huck uses the price/earnings ratio technique when purchasing stock. MMC stock is currently selling for $100 per share. MMC is expected to generate a profit of $10 per share this year. The industry averages a P/E of 9.5. Huck considers MMC to be approximately equal to other companies in its industry.

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  1. 8 January, 22:58
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    Profit earning ratio of MMC = 10%

    Explanation:

    Given:

    Current stock price = $100

    Yearly profit on each share = $10

    Profit earning ratio (P/E ratio) = ?

    Computation of profit earning ratio:

    Profit earning ratio (P/E ratio) = Current stock price / Yearly profit on each share

    Profit earning ratio (P/E ratio) = $100 / $10

    Profit earning ratio (P/E ratio) = 10

    It is computed that MMC's Profit earning ratio is nearer to the industry averages P/E ratio so, the investor can wait for some time to purchase this stock.
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Home » Business » Huck Finn is thinking about purchasing some stock in Mississippi Mining Company (MMC). Huck uses the price/earnings ratio technique when purchasing stock. MMC stock is currently selling for $100 per share.
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