Final answer:
The firm's P-E ratio is 18.00. To find the P-E ratio, divide the stock price ($63.00) by the earnings per share ($3.50), resulting in a P-E ratio of 18.00. The correct answer is A.
Step-by-step explanation:
The firm's P-E ratio can be calculated by dividing the stock price by the earnings per share (EPS). In this case, the earnings per share is $3.50 and the stock price is $63.00. Therefore, the P-E ratio is $63.00 / $3.50 = 18.00.
To find the P-E ratio, divide the stock price ($63.00) by the earnings per share ($3.50), resulting in a P-E ratio of 18.00.
The student has asked about how to calculate the P-E ratio (Price-to-Earnings ratio) for High-tech Electronics when it earned $3.50 per share and its stock is selling for $63.00 per share. To find the P-E ratio, we divide the current stock price by the earnings per share (EPS). In this case, we divide $63.00 by $3.50, which gives us a P-E ratio of 18. Therefore, the firm's P-E ratio is 18.00, which corresponds to answer choice A.
The price-to-earnings (P/E) ratio is a financial metric that assesses the valuation of a company's stock by comparing its current share price to its earnings per share (EPS). The formula for calculating the P/E ratio is given by dividing the stock's current market price by its earnings per share. In the case of High-Tech Electronics:
\[ \text{P/E ratio} = \frac{\text{Current Market Price per Share}}{\text{Earnings per Share}} \]
Given that High-Tech Electronics earned $3.50 per share and its stock is selling for $63.00, we can use the formula to calculate the P/E ratio:
\[ \text{P/E ratio} = \frac{63.00}{3.50} \approx 18.00 \]
Therefore, the correct answer is (a) 18.00. This indicates that investors are willing to pay 18 times the company's earnings for a single share of its stock. A higher P/E ratio generally suggests a higher level of confidence in the company's future earnings growth, while a lower ratio may indicate a lower expectation for future growth or potential undervaluation. The P/E ratio is a valuable tool for investors to assess a stock's relative value and make informed decisions based on its perceived growth prospects.