A firm has a share price of $55 per share and a P/E ratio of 75. If you buy the shares at this P/E and earnings fail to grow at all, how long should you expect it to take to just recover the cost of your investment?

Question

Quizplus · Accepted Answer

The P/E ratio of 75 means that it would take 75 years to recover the cost of the investment if earnings do not grow at all, as the P/E ratio represents the number of years it would take to earn back the price paid for the stock at the current earnings level.

A Firm Has a Share Price of $55 Per Share