FA corporation recently reported a net ncome of $2,000,000. The company has 500,000 shares of common stock that currently trade for $40 per share . The company continues to expand and anticipates that...

FA corporation recently reported a net ncome of $2,000,000. The company has 500,000 shares of common stock that currently trade for $40 per share . The company continues to expand and anticipates that one year from now its net income will be $3.25 million. Over the next yesr the company also anticipates issuing an additional 150,000 shares ,so that one year from now the company will have 650,000 shares of common stock .

a) Assuming the company's price to earnings ratio remains at its current level, what will be the company's stock price one year from now ?

b) The PE ratio is a very common method used by investors to get a quick calculation on the market's perception of a company. Evaluate the fornula used to calculate the PE ration focusing on the limitations of this method of valuation ?