A firm has 5,000 shares of stock outstanding,sales of $6,000,net income of $800,a price-ratio of 10,and a book value per share of $.50. What is the market-to-book ratio?
A) 1.6
B) 2.4
C) 3.0
D) 3.2
E) 3.6

Question

Quizplus · Accepted Answer

The market-to-book ratio can be calculated by dividing market value per share by book value per share. 
Market value per share = price-ratio * earnings per share = 10 * (net income / number of shares) = 10 * (800 / 5000) = 2
Book value per share = total equity / number of shares = 0.50

So, market-to-book ratio = 2 / 0.50 = 4/1 = 4

None of the given choices are exactly equal to 4, but D is the closest one with a value of 3.2. Therefore, the best choice is D.

A Firm Has 5,000 Shares of Stock Outstanding,sales of $6,000,net