A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio?
A) 2.12
B) 1.84
C) 1.39
D) 2.45
E) 2.69

Question

Quizplus · Accepted Answer

The market-to-book ratio is calculated by dividing the market value per share by the book value per share. First, find the market value per share by dividing the market capitalization (which is the product of the price-earnings ratio and net income) by the number of shares outstanding. Market capitalization = 21.3 * $126,400 = $2,692,320. Market value per share = $2,692,320 / 160,000 = $16.83. Then, market-to-book ratio = $16.83 / $7.92 = 2.12.

A Firm Has 160,000 Shares of Stock Outstanding, Sales of $1.94