Question

Ratzell's Place has a market-to-book ratio of 2.7, net income of $68,400, a book value per share of $37, and 45,000 shares of stock outstanding. What is the price-earnings ratio

Answer 1

The price-earnings ratio is 66 times

Step-by-step explanation:

Price earning ratio determines the ratio of price of a share by the earning per share . It measures the times value which a investor pays for each $1 earning of the shares.

Market to book ratio = Market price / Book value

2.7 = Market price / $37

Market price = $37 x 2.7 = $99.9

Earning per share = Net income / Outstanding number of shares

Earning per share = $68,400 / 45,000 = $1.52 per share

Price Earning Ratio = Market Price / Earning Per share

Price Earning Ratio = $99.9 / $1.52

Price Earning Ratio = 65.7 times = 66 times