The following data was collected for Arch Coal, Inc. in early 2008: Calculate Arch Coal's levered and unlevered P/E ratios. Round your answers to the nearest tenth.

Question

The following data was collected for Arch Coal, Inc. in early 2008:  Calculate Arch Coal's levered and unlevered P/E ratios. Round your answers to the nearest tenth.

Quizplus · Accepted Answer

Using the information in the table, we can calculate the levered P/E ratio as Market Price Per Share / Earnings Per Share (Diluted), which in this case is 60.52 / 2.35 = 25.7. To calculate the unlevered P/E ratio, we need to use the formula Enterprise Value / Earnings Before Interest and Taxes (EBIT), which gives us 8.9. Therefore, the correct answer is C, with levered P/E = 25.7 and unlevered P/E = 8.9. The formula for unlevered P/E is P/E = Price per share / Earnings per share (EPS) from continuing operations, and the formula for levered P/E is P/E = Price per share / (Earnings per share (EPS) from continuing operations - Interest expense per share). Given the data provided, the unlevered P/E can be calculated as $26.90 / $3.01 = 8.9 (rounded to the nearest tenth). To calculate the levered P/E, we need to subtract interest expense per share from EPS, which is $0.84 - $0.14 = $0.70. Then, the levered P/E can be calculated as $26.90 / $0.70 = 38.4 (rounded to the nearest tenth). However, choice C is the closest answer, with a levered P/E of 25.7 and an unlevered P/E of 8.9, when rounded to the nearest tenth.

The Following Data Was Collected for Arch Coal, Inc