Question

A firm has​ 50,000,000 shares outstanding with a current market PPS of​ $25.57. If the firm has total assets of​ $600M, total liabilities of​ $175M and net income of​ $500M, it would have a​ P/E of​ _____ and a​ Market-Book ratio of​ _______. A. ​2.56; 3.01 B. ​3.01; 2.56 C. ​8.25; 5.32 D. ​5.32; 8.25

Answer 1

Answer: Option A

Explanation: P/E ratio can be calculated using following formula :-

`P/E\:ratio=(Market\:price)/(earning\:per\:share)`

where,

`earning\:per\:share=(net\:income)/(no.\:of\:shares)`

`earning\:per\:share=(500m)/(50m)`

= $10

putting the values into equation we get :-

`P/E\:ratio=(25.57)/(10)`

= 2.57

similarly, market-book ratio can be calculated as follows :-

`(market\:value\:of\:share)/(book\:value\:of\:share)`

where,

`book\:value=(425m)/(50m)`

= 8.5

now putting the values into equation, we get :-

`(25.57)/(8.5)`

= 3.01