Exhibit 21-1 Refer to Exhibit 21-1.Which of the following is true assuming that the average PE ratio in this industry 15?

Question

Exhibit 21-1  Refer to Exhibit 21-1.Which of the following is true assuming that the average PE ratio in this industry 15?

Quizplus · Accepted Answer

The PE ratio is calculated by dividing the market price per share by earnings per share. In this case, the market price per share is $21.86 and the earnings per share is $1, which gives a PE ratio of 21.86. Assuming that the industry average PE ratio is 15, this means that the stock is overvalued. However, the question only asks for the true statement, which is that the price is 21.86 times the earnings per share.