Miley Corporation had net income of €250,000 and paid dividends to ordinary shareholders of €50,000 in 2014. The weighted average number of shares outstanding in 2014 was 50,000 shares. Miley Corporation's ordinary shares are selling for €40 per share. Miley Corporation's price-earnings ratio is

Question

Quizplus · Accepted Answer

To calculate the price-earnings ratio, we divide the market price per share by the earnings per share (EPS).
EPS = net income / average number of shares outstanding
EPS = €250,000 / 50,000 = €5 per share
Therefore, the price-earnings ratio is:
Price-earnings ratio = market price per share / earnings per share
Price-earnings ratio = €40 per share / €5 per share = 8 times. So, the correct answer is B.

Miley Corporation Had Net Income of €250,000 and Paid Dividends