Metals,Inc.has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price-earnings ratio of

Question

Quizplus · Accepted Answer

To calculate the price-earnings ratio, we need the earnings per share (EPS). We can find this by subtracting dividends from retained earnings and dividing by the number of outstanding shares:

EPS = (Retained Earnings - Dividends) / Outstanding Shares
EPS = ($1 million - 2% of $20 * 2.5 million) / 2.5 million
EPS = $950,000 / 2.5 million
EPS = $0.38 per share

Now we can find the price-earnings ratio:

P/E ratio = Price per share / EPS
P/E ratio = $20 / $0.38
P/E ratio = 52.63

So the correct answer is C, with a price-earnings ratio of 52.63, which is high by historical standards.