Calculate the implied share price of firm

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Reference no: EM13950166

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

Reference no: EM13950166

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