Answer:
The price/book ratio is 2.45
This price/book ratio indicates to shareholders that the company have a greater value than the book value, hence shareholders would buy more shares.
Explanation:
In order to calculate the price/book ratio we would have to calculate the following formula:
price/book ratio=Market price per share/Equity book value per share
Market price per share=price earnings ratio*earnings per share
Market price per share=$12.25*3
Market price per share=$36.75
Equity book value per share=stockholders equity/shares of common stock outstanding
Equity book value per share=$750,500/$50,000
Equity book value per share=$15.01
Therefore, price/book ratio=$36.75/$15.01
price/book ratio=2.45
The price/book ratio is 2.45
This price/book ratio indicates to shareholders that the company have a greater value than the book value, hence shareholders would buy more shares.
