Queen City Sausage Ltd.stock is selling at $40 per share.It has retained earnings of $1.50 per share,and dividends of $0.50 per share.What is the price / earnings ratio?

Question

Quizplus · Accepted Answer

To calculate the price/earnings ratio, we divide the market price per share by the earnings per share.
PE Ratio = Market Price per Share / Earnings per Share
Earnings per Share = Retained Earnings per Share - Dividends per Share
Earnings per Share = $1.50 - $0.50 = $1.00
PE Ratio = $40 / $1 = 40
Therefore, the price/earnings ratio of the Queen City Sausage Ltd.stock is 40. Option C is the correct choice, which indicates a price/earnings ratio of 20.