Question

A company has net income of $865,000; its weighted-average common shares outstanding are 173,000. Its dividend per share is $1.30, its market price per share is $105, and its book value per share is $101.5. Its price-earnings ratio equals (Do not round your intermediate calculations): a. 2.20. b. 20.30. c. 21.00. d. 3.50. e. 4.80.

Answer 1

c. 21.00

Step-by-step explanation:

The formula to compute the price earning ratio is shown below:

Price-earnings ratio = (Market price per share) ÷ (Earning per share)

where,

Market price per share is $105

And, the earning per share would be

= Net income ÷ weighted-average common shares outstanding

= $865,000 ÷ 173,000 shares

= $5

Now put these values to the above formula

So, the per share would equal to

= $105 ÷ $5

= 21