Financial information for Retro Designs includes the following selected data:
$\begin{array}{lr}
\text { Net income (in millions) } & \$ 145 \
\text { Preferred stock dividends (in millions) } & \$ 25 \
\text { Shares outstanding (in millions) } & 240 \
\text { Stock price } & \$ 10.00
\end{array}$
What is the company's price-earnings ratio?

Question

Financial information for Retro Designs includes the following selected data: 
$\begin{array}{lr}
\text { Net income (in millions) } & \$ 145 \
\text { Preferred stock dividends (in millions) } & \$ 25 \
\text { Shares outstanding (in millions) } & 240 \
\text { Stock price } & \$ 10.00
\end{array}$
What is the company's price-earnings ratio?

Quizplus · Accepted Answer

The price-earnings ratio is calculated by dividing the stock price by the earnings per share. The earnings per share is calculated by dividing the net income by the number of shares outstanding. In this case, the earnings per share is $145 million / 240 million shares = $0.60 per share. The price-earnings ratio is $10.00 / $0.60 per share = 20.0.

Financial Information for Retro Designs Includes the Following Selected Data