Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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### Calculating Expected Return on a Stock

**Scenario**: The price of Outdoor Designs, Inc. is now $85. The company pays no dividends. Fred Gray expects the price four years from now to be $125 a share. Should Fred buy Outdoor Designs if he wants a 15 percent rate of return? Explain.

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### Calculating Key Stock Performance Metrics

**The Castle Company** recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company's stock currently trades at $60 per share.

**Tasks:**
- **a.** Compute the stock’s earnings per share (EPS).
- **b.** What is the stock’s P/E ratio?
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Transcribed Image Text:### Calculating Expected Return on a Stock **Scenario**: The price of Outdoor Designs, Inc. is now $85. The company pays no dividends. Fred Gray expects the price four years from now to be $125 a share. Should Fred buy Outdoor Designs if he wants a 15 percent rate of return? Explain. --- ### Calculating Key Stock Performance Metrics **The Castle Company** recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company's stock currently trades at $60 per share. **Tasks:** - **a.** Compute the stock’s earnings per share (EPS). - **b.** What is the stock’s P/E ratio?
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