Acme Widget, Inc. has 1,000 shareholders who own a total of one million shares of its common stock. The stock currently sells for $85 per share. The company earned $5 million after taxes. The annual dividend is $0.50 per share. The firm has assets of $125 million and liabilities of $25 million. What is the P-E ratio?
A) 10
B) 11
C) 13
D) 17
E) 20

Question

Quizplus · Accepted Answer

P-E ratio = (stock price) / (earnings per share)
Earnings per share = (earnings after taxes) / (number of shares outstanding)
Earnings per share = $5,000,000 / 1,000,000 shares = $5 per share
Stock price = $85 per share

Therefore, P-E ratio = $85 / $5 = 17