Question

The following information relates to Conejo Corporation for last year: Book value per share $ 40 Par value per share $ 12 Dividends per share $ 5 Dividend payout ratio 20 % Dividend yield ratio 10 % What is Conejo's price-earnings ratio for last year?

Answer 1

Answer:

price earning ratio = 2

Explanation:

given data

Book value = $40 per share

Par value = $12 per share

Dividends =  $5 per share

Dividend payout ratio = 20 %  

Dividend yield ratio =  10 %

solution

first we get here market price per share by dividend yield ratio that is express as

dividend yield ratio = Dividends per share ÷ market price per share    ........................1

put here value we get

market price per share = $\frac{5}{0.10}$

market price per share = $50

and

now we get earning per share  by dividend payout ratio that is express as

dividend payout ratio  = dividend per share ÷  earning per share    .................................2

put here value we get

earning per share  = $\frac{5}{0.20}$

earning per share  = $25

so now we get here price earning ratio that is

price earning ratio = market price per share ÷ earning per share ..........................3

put here value we get

price earning ratio = $\frac{50}{25}$

price earning ratio = 2