Question

During the year, Lox, Stock and Bagel Inc.'s net income was $60,000. Its average stockholders' equity was $240,000, and it had 120,000 shares outstanding the entire year. Its stock was selling for $10 per share. Its P/E ratio equals ______. The company has no preferred stock. Multiple choice question. 20.00 0.50 40.00 0.25

Answer 1

Based on the information given its P/E ratio equals: 20.00.

Using this formula

P/E ratio =Selling price per share/(Net income/Number of shares outstanding)

Where:

Selling price per share=$10

Net income=$60,000

Number of shares outstanding=120,000 shares

Let plug in the formula

P/E ratio =$10/($60,000/120,000)

P/E ratio =$10/0.5

P/E ratio =20.00

Inconclusion its P/E ratio equals: 20.00.

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