In 2008, XYZ Corporation had total earnings of $200 million and 50 million shares of the corporation's stock were outstanding. If the price-earnings ratio for XYZ is 20, then what is the price of a share of its stock?
A)$5
B)$10
C)$80
D)$500

Question

Quizplus · Accepted Answer

The price-earnings ratio (P/E ratio) is defined as the price per share divided by the earnings per share. Rearranging the formula we get, price per share = P/E ratio x earnings per share. Here, the earnings per share of XYZ Corporation in 2008 is $200 million / 50 million shares = $4 per share. Since the P/E ratio is 20, the price per share is 20 x $4 = $80. Therefore, the correct choice is (C).

In 2008, XYZ Corporation Had Total Earnings of $200 Million