Longview Corporation has a stock price of $60,has issued 1,000,000 shares of stock,has retained earnings of $3 million dollars,and a dividend yield of 5 percent.The price-earnings ratio for Longview stock is
A)20,which is high compared to historical standards of the market.
B)20,which is low compared to historical standards of the market.
C)10,which is low compared to historical standards of the market.
D)10,which is high compared to historical standards of the market.

Question

Quizplus · Accepted Answer

The price-earnings ratio (P/E ratio) is calculated by dividing the stock price by the earnings per share (EPS). The EPS can be derived from the dividend yield and stock price. With a 5% dividend yield on a $60 stock, the dividend is $3 per share, suggesting earnings of $6 per share (since dividends are typically a portion of earnings). Thus, the P/E ratio is $60/$6 = 10, which is considered low compared to historical market standards.

Longview Corporation Has a Stock Price of $60,has Issued 1,000,000