A company has equity of $565,000, a return on equity of 12.2 percent, a share price of $83.26, and 24,000 shares outstanding. What is the price-earnings ratio for the company?

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings per share (EPS):
EPS = (Net Income - Preferred Dividends) / Number of Shares Outstanding
We don't have the net income or preferred dividends, but we can use the return on equity to calculate the net income:
Return on Equity = Net Income / Equity
0.122 = Net Income / 565,000
Net Income = 68,930
Now we can calculate the EPS:
EPS = (68,930 - 0) / 24,000 = 2.8729
The price-earnings ratio (P/E ratio) is calculated as the share price divided by the EPS:
P/E Ratio = Share Price / EPS
P/E Ratio = 83.26 / 2.8729
P/E Ratio = 28.99
Therefore, the answer is B.

A Company Has Equity of $565,000, a Return on Equity