A firm has net income of $198,500 and total equity of 1.15 million. There are 220,000 shares of stock outstanding at a price per share of $14.80. What is the firm's price-earnings ratio?
A)16.21
B)16.40
C)17.09
D)17.28
E)17.94

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings per share(EPS) by dividing net income by the number of shares outstanding: 
EPS = Net Income / Shares Outstanding = 198,500 / 220,000 = $0.902 
Next, we can calculate the price-earnings(P/E) ratio by dividing the price per share by the earnings per share: 
P/E Ratio = Price per share / EPS = $14.80 / $0.902 = 16.40 
Therefore, the firm's price-earnings ratio is 16.40.

A Firm Has Net Income of $198,500 and Total Equity