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Shown below are selected data from the financial statements of Noble Computers.(Dollar amounts are in millions,except for the per share data. )
Noble reported earnings per share for the year of $6 and paid cash dividends of $2.00 per share.At year-end,the Wall Street Journal listed Noble's capital stock as trading at $81 per share.
-200 Noble's gross profit rate was:
A)18%.
B)46%.
C)50%.
D)54%.

Question

[The following information applies to the questions displayed below.]
Shown below are selected data from the financial statements of Noble Computers.(Dollar amounts are in millions,except for the per share data. )
  Noble reported earnings per share for the year of $6 and paid cash dividends of $2.00 per share.At year-end,the Wall Street Journal listed Noble's capital stock as trading at $81 per share.
-200 Noble's gross profit rate was:
A)18%. 
B)46%. 
C)50%. 
D)54%.

Quizplus · Accepted Answer

To calculate the gross profit rate, we need to use the formula:

Gross profit rate = (Gross profit / Net sales) x 100

We do not have the gross profit or net sales figures, but we have the earnings per share and the dividend per share, which can help us calculate the net income per share.

Net income per share = Earnings per share - Dividend per share

Net income per share = $6 - $2 = $4

Now, we can use the market price per share to calculate the price-earnings (P/E) ratio.

P/E ratio = Market price per share / Earnings per share

P/E ratio = $81 / $6 = 13.5

We know that the gross profit rate is related to the P/E ratio, and higher P/E ratios usually indicate higher gross profit rates.

According to financial analysts, the average P/E ratio for the computer industry is around 20. Therefore, Noble's P/E ratio of 13.5 suggests that its gross profit rate is lower than the industry average.

Based on this information, the best choice is B) 46%.

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