A ﬁrm has 5,000 shares of stock outstanding, sales of $6,000, net income of $800, a price-earnings ratio of 10, and a book value per share of $.50. What is the market-to-book ratio?
A) 1.6
B) 2.4
C) 3.0
D) 3.2
E) 3.6

Question

Quizplus · Accepted Answer

The market-to-book ratio is calculated by dividing the market value per share by the book value per share. The market value per share can be found using the price-earnings ratio: Market value per share = (Net income / Number of shares) * Price-earnings ratio = ($800 / 5,000) * 10 = $1.60. The book value per share is $0.50. Therefore, the market-to-book ratio is $1.60 / $0.50 = 3.2.

A ﬁRm Has 5,000 Shares of Stock Outstanding, Sales of $6,000