Miller's Farm Has 110,000 Shares of Stock Outstanding, Sales of $960,000

question 50

Multiple Choice

Miller's Farm has 110,000 shares of stock outstanding, sales of $960,000, and net income of $51,000. Financial analysts believe the price-earnings ratio for this firm should be 15.8. Given this information, what should be the current stock price?

• A) $7.33
• B) $8.87
• C) $14.85
• D) $14.57
• E) $15.21

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Definitions:

Expected Rate

The rate of return that an investor anticipates earning on an investment without taking into account inflation or other factors that could affect the actual yield.

Liquidity Spreads

The difference in yield or cost between liquid (easily convertible to cash) assets and illiquid assets, often indicative of the liquidity premium required by investors.

Security A

A generic term used to represent a particular stock or financial instrument in theoretical examples.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates higher volatility, and less than 1 indicates lower volatility.