Lassiter Industries has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a profit margin of 4.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?
A) 21.9
B) 17.4
C) 18.6
D) 26.7
E) 24.3

Question

Quizplus · Accepted Answer

First, let's calculate the market capitalization of Lassiter Industries:
Market Capitalization = Price-Sales Ratio * Annual Sales
Market Capitalization = 1.20 * $328,000
Market Capitalization = $393,600

Next, we can calculate the earnings per share (EPS):
EPS = Profit Margin * Annual Sales / Number of Shares
EPS = 0.045 * $328,000 / 8,000
EPS = $1.85

Finally, we can calculate the price-earnings ratio (P/E):
P/E = Market Capitalization / EPS / Number of Shares
P/E = $393,600 / $1.85 / 8,000
P/E = 26.7

Therefore, the firm's price-earnings ratio is 26.7, which is option D.

Lassiter Industries Has Annual Sales of $328,000 with 8,000 Shares