Question

Botox Facial Care had earnings after taxes of $282,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was $81.80. In 20X2, earnings after taxes increased to $418,000 with the same 200,000 shares outstanding. The stock price was $94.00.

Required:
a. Compute earnings per share and the P/E ratio for 20X1.
b. Compute earnings per share and the P/E ratio for 20X2.
c. Why did the P/E ratio change? (

Answer 1

Answer:The earnings per share and The P/E ratio for 20X1 is $1.41 and $58.01 respectively.

The earnings per share and The P/E ratio for 20X2 is $2.09 and $44.976 respectively.

Step-by-step explanation:

a. Earning per shares = Earning after Taxes / total Shares outstanding

= $282,000/200,000

= $1.41

Therefore, The earnings per share for 20X1 is $1.41

P/E RATIO = Price Per shares/Earning per shares

= $81.80/$1.41

= $58.01

Therefore, The P/E ratio for 20X1 is $58.01

b. Earning per shares = Earning after Taxes / total Shares outstanding

= $418,000/200,000

= $2.09

Therefore, The earnings per share for 20X2 is $2.09

P/E RATIO = Price Per shares/Earning per shares

= $94.00/$2,09

= $44.976

Therefore, The P/E ratio for 20X2 is $44.976

c.The P/E ratio changed from $58.01 to $44.976 because of the change in earnings per share and the stock price per share.