Final answer:
To calculate the P/E ratio, divide the market price per share by the earnings per share (EPS), resulting in 2.5. For the market-to-book ratio, divide the market price per share by the book value per share, obtaining a ratio of 2.0.
Step-by-step explanation:
The question involves a company with 60 million shares outstanding and a market price per share of $50.00. The firm's balance sheet shows total assets of $4 Billion, total liabilities of $2.5 Billion, and net income of $1,200 million. To calculate the firm's Price to Earnings (P/E) ratio, you would divide the market price per share by the earnings per share (EPS). The EPS can be found by dividing the net income by the number of shares outstanding. So, EPS = $1200 million / 60 million shares = $20 per share. Therefore, the P/E ratio would be $50.00 / $20 = 2.5.
To calculate the market-to-book ratio, first we need to find the book value, which is the difference between total assets and total liabilities. In this case, book value = $4 Billion - $2.5 Billion = $1.5 Billion. To find the book value per share, we would divide the book value by the number of shares outstanding, resulting in $1.5 Billion / 60 million shares = $25 per share. The market-to-book ratio is then calculated by dividing the market price per share by the book value per share, which in this case would be $50.00 / $25 = 2.0.