The following amounts were taken from the financial statements of Plant Company: $\begin{array}{lrr}
\text { Total assets } & \$ 800,000 & \$ 1,000,000 \
\text { Net sales } & 720,000 & 650,000 \
\text { Gross profit } & 352,000 & 320,000 \
\text { Net income } & 155,000 & 117,000 \
\text { Weighted average number of common shares outstanding } & 90,000 & 90,000 \
\text { Market price of common stock } & \$ 67.50 & \$ 39
\end{array}$ The price-earnings ratio for 2013 is

Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated as the market price per share divided by the earnings per share (EPS). For 2013, EPS is $ \frac{117,000}{90,000} = 1.3 $. The market price is $39. Thus, the P/E ratio is $ \frac{39}{1.3} = 30 $, which is closest to 27 times.

The Following Amounts Were Taken from the Financial Statements of Plant