Expected gain using price-to-earnings ratio: Alpha Oil and Omega Oil

natalieinverno

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May 8, 2018
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I have a question that I have calculated out but the answer doesn't match my textbook.

Some basic information I have already calculated.
Alpha Oil-
Share Price - $5.00
Number of shares held - 500
Increase of 10% in one year = 0.50c
PER- 10

Omega Oil-
Share Price - $10.00
Number of shares held- 250
Increase of 8% in one year = 0.80c
PER- 10

The question asks: If in the next 12 months, the share price of:
*Alpha Oil increases by 10% (already calculated above) while the PER remains at 10
*Omega Oil increases by 8% (already calculated above) while the PER reduces to 8
What is the gain?

I calculated:
*Alpha Oil - PER=Stock Price Per Share/Earnings per share... 10=5.00/0.50
*Omega Oil - 8=10.00/0.80

I arrived at a $250 gain for Alpha and a $200 gain for Omega = $450 but the textbook says 612.50
I think I am going wrong with the PER being to the left of the = in the equation and not knowing what to do with it.

Any help would be appreciated.

Thank you
 
Using the Price-To-Earnings Ratio formula. Please help!!

I posted this morning but I can't see it so I'm trying again.

There are 2 companies, Alpha Oil with a share price of $5.00 and Omega Oil with a share price of $10.00. Michael owns 500 Alpha Oil shares and 250 Omega Oil Shares.

Alpha Oil shares increase by 10% and the price to earnings ratio remains at 10.
Omega Oil increases by 8% and the price to earnings ratio reduces from 10 to 8.
What is the expected gain to Michael?

Equation: Price to Earnings Ratio= stock price per share/earnings per share
Alpha Oil: 10=5.00/0.50=10
Omega Oil: 8=10.00/0.80=12.50

The textbook answer is 612.50 and I do not know how they arrived at this??

The way I worked it was:
Alpha Oil increased by 0.50x500 shares= 250
Omega Oil increased by .8x250 shares = 200
Therefore: 200+250=$450.
Am I missing something??
Please help!!
 
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