Question

Scenario 1 The financial statements and data shown below are to be used for the next three (3) questions. All figures are in millions except the tax rate and the year-end stock price. BALANCE SHEET Cash $ 140.0 Accounts payable $ 800.0 Accts. receivable 880.0 Notes payable 600.0 Inventories 1,320.0 Accruals 400.0 Total current assets $2,340.0 Total current liabilities $1,800.0 Long-term bonds 1,000.0 Total debt $2,800.0 Common stock 200.0 Retained earnings 1,000.0 Net plant & equip. 1,660.0 Total common equity $1,200.0 Total assets $4,000.0 Total liabilities & equity $4,000.0 INCOME STATEMENT Net sales $6,000.0 Operating costs 5,599.8 Depreciation 100.2 EBIT $ 300.0 Less: Interest 96.0 EBT $ 204.0 Less: Taxes 81.6 Net income $ 122.4 OTHER DATA Shares outstanding 60.00 Common dividends $42.8 Federal plus state income tax rate 40% Year-end stock price $30.60 Use Scenario 1 to answer the question. What is the firm’s P/E ratio?

Answer 1

15

Step-by-step explanation:

P/E Ratio = Price per Share/Earnings per share

Price per share = $30.60

Earnings per share = Net income ÷ Stock outstanding

Earnings per share = $122.4 ÷ 60

= $2.04

Therefore,

P/E Ratio = Price per Share ÷ Earnings per share

= $30.60 ÷ $2.04

P/E Ratio = 15

Hence, the firm’s P/E ratio is 15.