A company originally issues 180,000 shares of stock at a price of $22; one year later the stock price is $40 per share, the number of outstanding shares is unchanged, and the company's net income for the year is $230,400. The P/E ratio at the end of the year is:
A) 0.0002.
B) 24.22.
C) 31.25.
D) 0.0001.

Question

Quizplus · Accepted Answer

The P/E ratio is calculated by dividing the current stock price by the earnings per share (EPS). EPS is calculated by dividing the net income by the number of outstanding shares. EPS = $230,400 / 180,000 = $1.28. P/E ratio = $40 / $1.28 = 31.25.

A Company Originally Issues 180,000 Shares of Stock at a Price