Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's priceearnings ratio?
A) 18.75

Question

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price­earnings ratio?

Quizplus · Accepted Answer

To calculate the price-earnings ratio, we need to divide the share price by the earnings per share. The earnings per share are the retained earnings per share (which are also known as the book value per share) multiplied by the dividend yield.

Retained earnings per share = $2 per share
Dividend yield = 2% = 0.02

Earnings per share = $2 x 0.02 = $0.04

Price-earnings ratio = Share price / Earnings per share
                  = $60 / $0.04 = 1500 / 100 = 15

Bountiful Tractors Has a Share Price of $60, Retained Earnings