A company's stock sells for $62.50 per share. The price-earnings ratio is 22.5, and the company has 17,000 shares outstanding. What is the company's net income?

Question

Quizplus · Accepted Answer

The company's net income can be calculated using the price-earnings (P/E) ratio formula: P/E = Market Value per Share / Earnings per Share (EPS). Rearranging the formula to solve for EPS gives us EPS = Market Value per Share / P/E Ratio. Substituting the given values, we get EPS = $62.50 / 22.5 = $2.7778 (approximately). The total earnings (net income) is then EPS multiplied by the number of shares outstanding: $2.7778 * 17,000 = $47,222.22, which rounds to $47,222, matching choice E.

A Company's Stock Sells for $62