Market Value Ratios Lab R Doors' year-end price on its common stock is $40. The firm has a profit margin of 10%, total assets of $30 million, a total asset turnover ratio of 2, no preferred stock, and there are 4 million shares of common stock outstanding. What is the PE ratio for Lab R Doors?
A) 0.375
B) 0.750
C) 6.667
D) 26.667

Question

Quizplus · Accepted Answer

To calculate the PE ratio, we need to divide the current stock price by the earnings per share (EPS). 
The EPS can be calculated by dividing the net income by the number of common shares outstanding.
Net Income = 10% of Total Assets = 0.10 * 30,000,000 = 3,000,000
EPS = (Net Income / Number of Common Shares Outstanding) = (3,000,000/ 4,000,000) = $0.75
PE Ratio = (Price per Share / EPS) = (40 / 0.75) = 53.33
Therefore, the correct choice is D, with a PE ratio of 26.667.

Market Value Ratios Lab R Doors' Year-End Price on Its