ComChip is a computer chip manufacturer whose stock is selling at $50 per share.Next year's net earnings,minus the preferred stock dividends,is estimated to be $200,000.The company currently has 100,000 shares of common stock outstanding.What is the firm's P/E ratio?

Question

Quizplus · Accepted Answer

The P/E ratio is calculated by dividing the market value per share by the earnings per share (EPS). First, calculate the EPS: $200,000 net earnings / 100,000 shares = $2 per share. Then, calculate the P/E ratio: $50 per share / $2 EPS = 25. Therefore, the P/E ratio is 25.

ComChip Is a Computer Chip Manufacturer Whose Stock Is Selling