Daisy Inc.'s book value per share is $10, and its market-to-book ratio is 1.5. If its earnings per share is $2.5, calculate its price/earnings (P/E) ratio.
A)6.0
B)6.7
C)4.0
D)10.0
E)3.3

Question

Daisy Inc.'s book value per share is $10, and its market-to-book ratio is 1.5. If its earnings per share is $2.5, calculate its price/earnings (P/E) ratio. 
A)6.0
B)6.7
C)4.0
D)10.0
E)3.3

Quizplus · Accepted Answer

The market price per share is calculated as the book value per share ($10) multiplied by the market-to-book ratio (1.5), which equals $15. The P/E ratio is the market price per share ($15) divided by the earnings per share ($2.5), resulting in a P/E ratio of 6.0.

Daisy Inc'S Book Value Per Share Is $10, and Its Market-To-Book