Question

13) Baxter & Baxter has total assets of $710,000. There are 45,000 shares of stock outstanding with a market value of $28 a share. The firm has a net profit margin of 7.1 percent and a total asset turnover of 1.29. What is the price-earnings ratio?

Answer 1

Answer:

19.38

Explanation:

Baxter & Baxter

Market value share/ Percentage of profit margin ×(Total assets ×Total asset turnover)/Outstanding shares

Where:

Market value shares=28

Percentage of profit margin =71%

Total assets =710,000

Total asset turnover=1.29

Outstanding shares =45,000

Hence:

Price-earnings ratio =

$28/[0.071 ×($710,000 ×1.29)]/45,000

=19.38