Question

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent.

It has a price-earnings ratio of:

a. 50, which is high by historical standards.
b. 50, which is low by historical standards.
c. 25, which is high by historical standards.
d. 25, which is low by historical standards.

Answer 1

a. 50, which is high by historical standards.

Step-by-step explanation:

a. 50, which is high by historical standards.

It is high because current price is high than earnings.

Earning yield is the reciprocal of price earning ratio that is = 1/ (P/E ratio) expressed as a percentage.

So

PRice Earning ratio = Market price per share/ Earning per share

Price Earning ration= $20/ 0.4 = 50

Earning per share= Earnings/ No of shares outstanding

EPS= $ 1 million/$ 2.5 million = 0.4