The Claremont Company is planning an initial public offering (IPO) and management would like to have an idea of an appropriate price to charge for a share of its stock.

The company plans to issue 100,000 shares. The Claremont Company’s most recent earnings per share (EPS) are \($1.25;\) however, the consensus forecast among analysts who follow the company is for EPS to be \($1.50.\) The EPS and share price of four comparable firms are shown below:

Compute the value of a share of Claremont Company stock using the price-earnings multiples method.

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Firm EPS Share Price P/E ratio A B $ 1.00 0.60 $ 18.00 18 13.20 22 C. 10.00 140.00 14 D. 2.20 57.20 26