BVI Corporation had net income of $1,600,000 and paid dividends to common stockholders of $400,000 in 2014. The weighted average number of shares outstanding in 2014 was 500,000 shares. BVI Corporation's common stock is selling for $50 per share on the NASDAQ. BVI Corporation's price-earnings ratio is

Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated by dividing the current stock price by the earnings per share. The earnings per share is calculated by dividing the net income by the weighted average number of shares outstanding. In this case, the net income is $1,600,000, the weighted average number of shares outstanding is 500,000 shares, and the current stock price is $50 per share. Therefore, the earnings per share is $1,600,000 / 500,000 shares = $3.20 per share. The price-earnings ratio is $50 per share / $3.20 per share = 15.6 times.

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