The following information is available for Taylor Company: Which of the following statements is correct?
A) The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2010.
B) The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2010.
C) The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2010.
D) The market price per share and the earnings per share are not statistically related to each other.

Question

The following information is available for Taylor Company:  Which of the following statements is correct?
A) The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2010. 
B) The price-earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2010. 
C) The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2010. 
D) The market price per share and the earnings per share are not statistically related to each other.

Quizplus · Accepted Answer

The information given (11ea9299_7dd8_994e_85c7_4dc857af1114_TB6235_00) corresponds to the price-earnings (P/E) ratio for Taylor Company at the end of 2010. The P/E ratio is calculated by dividing the market price per share by the earnings per share. Option A states that the P/E ratio is 20 and that a share was selling for 20 times the earnings per share, which is a common interpretation of the P/E ratio. Options B and C present incorrect calculations or interpretations of the P/E ratio. Option D is also incorrect as the market price per share and the earnings per share are always related through the P/E ratio.

The Following Information Is Available for Taylor Company: Which