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.

Question

Quizplus · Accepted Answer

To calculate the price-earnings ratio, we need to divide the price per share by the earnings per share. Since the question does not provide the earnings per share, we cannot calculate the exact price-earnings ratio. However, we know that the dividend yield is 2 percent, which suggests that the company is profitable and has a positive earnings per share. Therefore, the price-earnings ratio is likely to be positive.

To choose the correct answer, we need to consider the given price of $20 a share and the fact that the company has a dividend yield of 2 percent. A high dividend yield usually indicates that the company is stable and generates consistent profits. On the other hand, a low dividend yield may suggest that the company is not profitable or has significant debt.

Since the question states that the company has a dividend yield of 2 percent, we can assume that it is profitable and has a good financial standing. Therefore, the price-earnings ratio is likely to be at least the industry average of 25, which is considered high by historical standards.

Choice C, which states that the price-earnings ratio is 25 and is high by historical standards, is the best answer.