Question

Bernice’s has $823,000 in sales. The profit margin is 4.2 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $16.50. What is the price-earnings ratio? Select one: a. 3.58 b. 3.98 c. 4.32 d. 3.51 e. 4.27

Answer 1

Answer:

a. 3.58

Explanation:

the price earning ratio is obtain with the following formula:

$\frac{Market \: Price}{EPS}$

We are given with the market price, now we need to solve for the EPS

with sales and profit margin we solve for net income. then we divide by the shares outstanding to get the EPS

823,000 sales x 4.2 profit margin = 34.566‬ net income

now we solve for EPS Earning per share:

$\frac{Income}{Shares}\\\frac{34,566}{7,500} = 4.6088‬$

Now we can sovle for price-earnings ratio

$\frac{Market \: Price}{EPS}$

16.50/4.61 = 3,5791 = 3.58