A firm has net income of $1 million with 250,000 shares outstanding with a total market value of $8 million. What is its P/E ratio?

Question

Quizplus · Accepted Answer

The P/E ratio is calculated by dividing the market value per share by the earnings per share. The market value per share is calculated by dividing the total market value by the number of shares outstanding. Thus, market value per share = $8,000,000/250,000 = $32. Earnings per share = net income/number of shares outstanding = $1,000,000/250,000 = $4. Therefore, P/E ratio = $32/$4 = 8. So, the answer is B.

A Firm Has Net Income of $1 Million with 250,000