Use the information for the question(s)below.
In November 2019,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
-Perrigo's price-earnings ratio (P/E)is closest to:
A)15.96.
B)21.85.
C)29.77.
D)35.64.

Question

Quizplus · Accepted Answer

First, we need to calculate Perrigo's market capitalization, which is the share price multiplied by the number of shares outstanding: 
Market cap = $39.20 x 91.33 million = $3.57 billion

Next, we need to calculate Perrigo's book value, which is the difference between its total assets and total liabilities: 
Book value = ($257.09 million cash) - ($845.01 million debt) = -$587.92 million

Since Perrigo's book value is negative, we cannot use the market-to-book ratio to estimate its P/E ratio. Instead, we can use the formula:

P/E ratio = Market capitalization / Net income

P/E ratio = $3.57 billion / $163.82 million = 21.85

Therefore, the closest option is (B) 21.85.

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