Question

Given the following information, determine the price-earnings ratio.

Market price of common stock at year-end $64.00
Earnings per share 4.00
Dividends per share 2.00
a. 32.0
b. 0.6
c. 2.0
d. 16.0

Answer 1

The Price-Earnings ratio, calculated by dividing the market price of common stock ($64.00) by the earnings per share ($4.00), is d. 16.0.

Step-by-step explanation:

The Price-Earnings (P/E) ratio is a measure used in finance to value a company by comparing its current share price to its earnings per share (EPS). To calculate the P/E ratio, we divide the market price of common stock by the earnings per share. Based on the information provided:

• Market price of common stock at year-end: $64.00
• Earnings per share: $4.00

The P/E ratio is calculated as follows:

P/E ratio = Market Price of Common Stock / Earnings Per Share

P/E ratio = $64.00 / $4.00 = 16.0

Therefore, the correct answer is d. 16.0.