The Apple Pie Company had net income of $48,100 and earnings per share of $3.77. Apple Pie declared dividends of $2.60 per share of common stock during 2016. On December 31, 2016, the stock had a market price of $17.90 per share. Apple Pie’s price/earnings ratio is closest to:
a. 4.75
b. 7.02
c. 0.21
d. 6.88
Answer: price/earnings ratio =4.74
Working notes for the above answer is as under
We have been provided with the information that,
Apple Pie Company had net income of $48,100
EPS =earnings per share of $3.77.
Apple Pie declared dividends of $2.60 per share of common stock during 2016.
On December 31, 2016, the stock had a market price of $17.90 per share.
Now we need to find out price/earnings ratio
The calculation of price/earnings ratio are as follow
PE ratio =
Markate Value per share / Earning Per Share
=17.90 /3.77
=4.75
