Starbuck Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000 in Year 1.The weighted average number of shares outstanding in Year 1 was 50,000 shares.Starbuck Corporation's common stock is selling for $40 per share on the New York Stock Exchange. ?
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Starbuck's price-earnings ratio is:
A) 2.
B) 5.
C) 10.
D) 8.

Question

Quizplus · Accepted Answer

The price-earnings ratio (P/E ratio) is calculated by dividing the market value per share by the earnings per share (EPS). First, calculate the EPS: EPS = Net Income / Weighted Average Shares Outstanding = $250,000 / 50,000 = $5 per share. Then, calculate the P/E ratio: P/E Ratio = Market Value per Share / EPS = $40 / $5 = 8.

Starbuck Corporation Had Net Income of $250,000 and Paid Dividends