Question

Jupiter Explorers has $8,200 in sales. The profit margin is 5 percent. There are 5,200 shares of stock outstanding. The market price per share is $1.70. What is the price-earnings ratio?

a.13.40
b.10.78
c.37.10
d.21.56
e.14.45

Answer 1

By calculating the earnings per share and dividing the market price per share by it, the price-earnings ratio for Jupiter Explorers is determined to be approximately 21.57.

Step-by-step explanation:

To calculate the price-earnings ratio for Jupiter Explorers, begin by determining the total profit. Since the profit margin is 5 percent of sales, the profit can be calculated by multiplying the total sales of $8,200 by 5%, which equals to $410. Next, you divide this profit by the number of outstanding shares to find the earnings per share (EPS).

With 5,200 shares outstanding, the EPS is $410 / 5,200, which equals to approximately $0.0788 per share. Finally, divide the market price per share of $1.70 by the EPS of $0.0788 to find the price-earnings (P/E) ratio. This results in a P/E ratio of approximately $1.70 / $0.0788, which is approximately 21.57.