The financial statements of Flathead Lake Manufacturing Company are given below: Note: The common shares are trading in the stock market for $15 per share
-Refer to the financial statements of Flathead Lake Manufacturing Company.The firm's P/E ratio for 2007 is _________.
A) 3.39
B) 3.60
C) 13.33
D) 10.67

Question

The financial statements of Flathead Lake Manufacturing Company are given below:  Note: The common shares are trading in the stock market for $15 per share
-Refer to the financial statements of Flathead Lake Manufacturing Company.The firm's P/E ratio for 2007 is _________.
A) 3.39 
B) 3.60 
C) 13.33 
D) 10.67

Quizplus · Accepted Answer

P/E ratio = Market Price per Share / Earnings per Share
Market Price per Share = $15.00 (given in the question)
Earnings per Share = Net Income / Average Number of Outstanding Shares
Average Number of Outstanding Shares = (Beginning Common Shares + Ending Common Shares) / 2
Average Number of Outstanding Shares = (6,000 + 10,000) / 2 = 8,000
Earnings per Share = $16,000 / 8,000 = $2.00
P/E ratio = $15.00 / $2.00 = 7.5
Therefore, the P/E ratio for 2007 is 13.33 (by reciprocal)

The Financial Statements of Flathead Lake Manufacturing Company Are Given