Question

Dailyfinance.com reported one $40 share of coca-cola’s (ko) stock bought in 1919, with dividends reinvested, would be worth $9.8 million today. if the price-earnings ratio was 26.32 at that time, what were the annual earnings per share?

Answer 1

The annual earnings per share in 1919 for Coca-Cola's stock can be calculated by dividing the market value per share by the price-earnings ratio; thus, EPS was $40 / 26.32, resulting in an EPS of $1.52.

Step-by-step explanation:

To calculate the earnings per share (EPS) from the given price-earnings ratio, we need to rearrange the formula of the P/E ratio. The P/E ratio is given by the market value per share divided by the earnings per share. In this case, we know the P/E ratio is 26.32, and the market value per share was $40 in 1919.

Using the formula P/E = Market Value per Share / EPS, we rearrange it to solve for EPS: EPS = Market Value per Share / P/E Ratio. Substituting the known values, we get EPS = $40 / 26.32.

Now perform the calculation: EPS = $1.52. Therefore, the annual earnings per share in 1919 for Coca-Cola's stock was $1.52.

Answer 2

The annual earnings per share would be approximately $372,097.69.

Step-by-step explanation:

To find the annual earnings per share, we need to first calculate the final value of the investment, then divide it by the number of shares. According to the given information, one $40 share of Coca-Cola's stock bought in 1919 would be worth $9.8 million today, with dividends reinvested. The price-earnings ratio at that time was 26.32. Substituting the given values into the equation, we get: EPS = $40 / 26.32. Calculating this gives us an EPS of approximately $1.52.

To calculate the annual earnings per share, we can divide the final value of the investment by the price-earnings ratio: $9.8 million / 26.32 = $372,097.69.

Therefore, the annual earnings per share would be approximately $372,097.69.