Question

Shown below are selected data from the financial statements of Noble Computers. (Dollar amounts are in millions, except for the per share data.)

Income statement data:
Net sales $ 3,500
Cost of goods sold $ 1,890
Operating expenses $ 675
Net income $ 115

Balance sheet data:
Average total equity $ 540
Average total assets $ 4,400
Noble reported earnings per share for the year of $6 and paid cash dividends of $2.00 per share. At year-end, the Wall Street Journal listed Noble's capital stock as trading at $81 per share.
Noble's price-earnings ratio at year end was:
Select one:
a. 0.07
b. 13.5
c. 17
d. 1.42

Answer 1

To calculate the price-earnings ratio for Noble Computers, divide the current stock price of $81 by the earnings per share of $6, resulting in a P/E ratio of 13.5.

Step-by-step explanation:

The student is looking to calculate Noble Computer's price-earnings ratio (P/E ratio), which is defined as the market value per share divided by the earnings per share (EPS). To find the P/E ratio, we take the current trading price of $81 per share and divide it by the EPS of $6 to get a P/E ratio of 13.5.