BVI Corporation had net income of $1,600,000 and paid dividends to common stockholders of $400,000 in 2017. The weighted average number of shares outstanding in 2017 was 500,000 shares. BVI Corporation's common stock is selling for $40 per share on the NASDAQ. BVI Corporation's price-earnings ratio is
A) 3.2 times.
B) 12.5 times.
C) 8 times.
D) 4 times.

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings per share (EPS) by dividing net income by the weighted average number of shares outstanding:

EPS = net income / weighted average number of shares outstanding
EPS = $1,600,000 / 500,000 shares
EPS = $3.20 per share

Next, we can calculate the price-earnings (P/E) ratio by dividing the stock price by the EPS:

P/E ratio = stock price / EPS 
P/E ratio = $40 per share / $3.20 per share 
P/E ratio = 12.5 times

Therefore, the answer is B) 12.5 times.

BVI Corporation Had Net Income of $1,600,000 and Paid Dividends