Thomas Publishing has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price to earnings ratio of

Question

Quizplus · Accepted Answer

To calculate the price-to-earnings ratio, we need to divide the market price per share by the earnings per share. We are not given earnings per share in the question stem, so we cannot calculate the P/E ratio directly. However, we do know that the company has retained earnings of $1 million and a dividend yield of 2 percent. A company's dividend yield is the annual dividend payment divided by the current stock price. In this case, the dividend yield is 0.02 * $20 = $0.40 per share. If we assume that the company pays out its entire $1 million earnings in dividends, we can calculate the earnings per share as follows:

Earnings per share = Total earnings / Number of shares
Earnings per share = $1 million / 2.5 million shares
Earnings per share = $0.40 per share

Now we can calculate the P/E ratio:

P/E ratio = Market price per share / Earnings per share
P/E ratio = $20 / $0.40
P/E ratio = 50

A P/E ratio of 50 is considered high by historical standards, indicating that investors are willing to pay a premium for the company's earnings. Therefore, the correct choice is C.

Thomas Publishing Has a Price of $20 a Share,outstanding Shares