XYZ Company recently released earnings and the stock is trading at $40.00 per share or 40 times earnings. This is well below the companys normal range of 20-25 times earnings which corresponds to the expected growth rate for the company. When you look at the income statement you see the following:

Pretax income $30,000

Income taxes 12,000

Income from continuing operations 18,000

Discontinued operations ( 8,000)

Net Income $10,000

Shares outstanding 10,000

Net earnings per share $ 1.00

In addition to the above, you determine that the results of operations included a $5,000 non-recurring loss from litigation and that the companys normal tax rate is 30%. Based on this information a) prepare a reconciliation of Net Income as reported to recurring NICO, b) calculate the recurring NICO per share and C) calculate the PE ratio using the recurring NICO per share. THE PRICE OF THE STOCK IS $40.00 PER SHARE.

a) Show your reconciliation here (10 points):

Net Income as reported $10,000

b) Recurring NICO per share (1 pt) _________________________________________________

c) Adjusted PE Ratio (1 pt) _______________________________________________________

d) (1 pt): Is the stock over, under or adequately valued at $40.00?__________________________