Ferrell Inc. recently reported net income of $8 million. It has 410,000 shares of common stock, which currently trades at $31 a share. Ferrell continues to expand and anticipates that 1 year from now, its net income will be $12.8 million. Over the next year, it also anticipates issuing an additional 41,000 shares of stock so that 1 year from now it will have 451,000 shares of common stock. Assuming Ferrell's price/earnings ratio remains at its current level, what will be its stock price 1 year from now? Do not round intermediate calculations. Round your answer to the nearest cent

To determine the stock price of Ferrell Inc. one year from now, we can follow these steps:

### Step 1: Calculate the current Price/Earnings (P/E) ratio.
The P/E ratio is calculated as:

\[
\text{P/E ratio} = \frac{\text{Current stock price}}{\text{Earnings per share (EPS)}}
\]

First, we need to calculate the current EPS:

\[
\text{EPS (current)} = \frac{\text{Net income (current)}}{\text{Number of shares (current)}}
\]

\[
\text{EPS (current)} = \frac{8,000,000}{410,000} = 19.51
\]

Now, calculate the current P/E ratio:

\[
\text{P/E ratio} = \frac{31}{19.51} \approx 1.588
\]

### Step 2: Calculate the expected EPS for next year.
The expected EPS next year is calculated as:

\[
\text{EPS (next year)} = \frac{\text{Net income (next year)}}{\text{Number of shares (next year)}}
\]

\[
\text{EPS (next year)} = \frac{12,800,000}{451,000} \approx 28.38
\]

### Step 3: Determine the stock price next year using the current P/E ratio.
Assuming the P/E ratio remains the same:

\[
\text{Stock price (next year)} = \text{P/E ratio} \times \text{EPS (next year)}
\]

\[
\text{Stock price (next year)} = 1.588 \times 28.38 \approx 45.08
\]

Thus, the stock price 1 year from now is **$45.08**.

Would you like more details or have any questions?

Here are 5 related questions:
1. How would changes in the P/E ratio affect the future stock price?
2. What would be the impact if Ferrell Inc. had issued fewer shares?
3. How is the P/E ratio used to compare companies in the same industry?
4. What are other methods to value a company's stock?
5. How would changes in net income growth projections impact future stock price?

**Tip:** Understanding the P/E ratio helps in assessing whether a stock is overvalued or undervalued compared to its earnings.

Learn how to calculate Ferrell Inc.'s stock price one year from now using the Price/Earnings (P/E) ratio. Understand the impact of net income and shares issued on stock valuation. Detailed step-by-step solution and calculations provided.

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