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Shannon Corporation had profit of $250,000 and paid dividends to common shareholders of $50,000 in 2013. The weighted average number of shares issued in 2013 was 50,000 shares. Shannon Corporation's common shares are selling for $40 per share on the Toronto Stock Exchange.
-Shannon Corporation's price-earnings ratio is
A) 2 times.
B) 8 times.
C) 10 times.
D) 5 times.

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Quizplus · Accepted Answer

The price-earnings ratio is calculated by dividing the market value per share by the earnings per share (EPS). First, calculate the EPS: $250,000 profit - $50,000 dividends = $200,000 net income; $200,000 / 50,000 shares = $4 EPS. Then, calculate the P/E ratio: $40 per share / $4 EPS = 10 times.

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