If the ﬁrm is currently carrying a price/earnings ratio of 2, what is the ﬁrm's approximate market price per share?
A) $8
B) $11
C) $56
D) $78
E) $129

Question

If the ﬁrm is currently carrying a price/earnings ratio of 2, what is the ﬁrm's approximate market price per share?
A) $8 
B) $11 
C) $56 
D) $78 
E) $129

Quizplus · Accepted Answer

To find the approximate market price per share, we can use the formula: market price per share = earnings per share x price/earnings ratio. The earnings per share can be calculated by dividing the net income by the number of outstanding shares, which is $4 million / 100,000 = $40. Thus, the market price per share is $40 x 2 = $80. However, since the answer choices are not exact, the closest choice is C, which is $56.

If the ﬁRm Is Currently Carrying a Price/earnings Ratio of 2