Question

Botox Facial Care had earnings after taxes of $330,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was $42.00. In 20X2, earnings after taxes increased to $386,000 with the same 200,000 shares outstanding. The stock price was $53.00. a. Compute earnings per share and the P/E ratio for 20X1. (The P/E ratio equals the stock price divided by earnings per share.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.) b. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) c. Why did the P/E ratio change

Answer 1

Botox Facial Care

20X1 20X2

a. Earnings per share $1.65 $1.93

b. P/E ratio 25.45x 27.46x

c. The P/E ratio changed from 25.45x to 27.46x following a change in earnings per share and the stock price per share.

Step-by-step explanation:

a) Data and Calculations:

20X1 20X2

Earnings after taxes $330,000 $386,000

Outstanding shares 200,000 200,000

Earnings per share $1.65 $1.93

Stock price $42.00 $53.00

P/E ratio 25.45x 27.46x

Earnings per share = Earnings after taxes/Outstanding shares

P/E ratio = Stock price/Earnings per share