If a firm has sales of $100,total expenses (including interest and taxes)of $50,has a stock that is selling at $50 per share and has 10 share of stock outstanding,then the firm has a P/E ratio of:

Question

Quizplus · Accepted Answer

The P/E ratio is calculated by dividing the stock price by the earnings per share (EPS).

EPS = (Sales - Total expenses)/Total number of shares outstanding 
     = ($100 - $50)/10 
     = $5

Therefore, P/E ratio = Stock price/EPS 
                     = $50/$5 
                     = 10

Hence, the correct answer is C) 10.0.

If a Firm Has Sales of $100,total Expenses (Including Interest