What is the market price per share of Big Whoop Inc. if the firm had net income of $200,000, earnings per share of $2.70, total equity of $800,000, and a market-to-book ratio of 1.5?
A) $16.20
B) $10.80
C) $7.20
D) $12.40

Question

Quizplus · Accepted Answer

The market price per share can be calculated using the earnings per share (EPS) and the price-to-earnings (P/E) ratio. Given the net income and EPS, we can find the P/E ratio using the market-to-book ratio. The book value per share is the total equity divided by the number of shares. With a net income of $200,000 and an EPS of $2.70, there are 200,000 / 2.70 = 74,074.07 shares. The book value per share is $800,000 / 74,074.07 = $10.80. With a market-to-book ratio of 1.5, the market price per share is 1.5 * $10.80 = $16.20.

What Is the Market Price Per Share of Big Whoop