Silas Corporation had net income of $200,000 and paid dividends to ordinary shareholders of $40,000 in 2014. The weighted average number of shares outstanding in 2014 was 50,000 shares. Silas Corporation's ordinary shares are selling for $50 per share on the New York Stock Exchange. Silas Corporation's price-earnings ratio is
A) 3.2 times.
B) 12.5 times.
C) 15.6 times.
D) 4 times.

Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated by dividing the market price per share by the earnings per share (EPS). EPS is calculated as net income divided by the weighted average number of shares outstanding. EPS = $200,000 / 50,000 = $4. The price-earnings ratio = $50 / $4 = 12.5 times.

Silas Corporation Had Net Income of $200,000 and Paid Dividends