The following information pertains to the Kathy Company for the year ended December 31, Year 2:
$\begin{array}{ll}
\text { Common shares outstanding } & 1,000,000 \
\text { Stated value per share } & \$ 10.00 \
\text { Market price per share } & \$ 80.00 \
\text { Year 1 dividends paid per share } & \$ 4.00 \
\text { Year 2 dividends paid per share } & \$ 5.00 \
\text { Earnings per share } & \$ 8.00
\end{array}$

The price-earnings ratio for Kathy's common stock is
A)8 times
B)9 times
C)10 times
D)12 times
E)14 times

Question

The following information pertains to the Kathy Company for the year ended December 31, Year 2: 
$\begin{array}{ll}
\text { Common shares outstanding } & 1,000,000 \
\text { Stated value per share } & \$ 10.00 \
\text { Market price per share } & \$ 80.00 \
\text { Year 1 dividends paid per share } & \$ 4.00 \
\text { Year 2 dividends paid per share } & \$ 5.00 \
\text { Earnings per share } & \$ 8.00
\end{array}$

The price-earnings ratio for Kathy's common stock is
A)8 times
B)9 times
C)10 times
D)12 times
E)14 times

Quizplus · Accepted Answer

The price-earnings (P/E) ratio is calculated by dividing the market price per share by the earnings per share (EPS). Here, the market price per share is $80 and the EPS is $8. Therefore, the P/E ratio is $80 / $8 = 10 times.

The Following Information Pertains to the Kathy Company for the Year