The following information relates to Conejo Corporation for last year: What is Conejo's price-earnings ratio for last year?
A)1.6
B)2.4
C)8.0
D)2.0

Question

The following information relates to Conejo Corporation for last year:  What is Conejo's price-earnings ratio for last year?
A)1.6 
B)2.4 
C)8.0 
D)2.0

Quizplus · Accepted Answer

Dividend yield ratio = Dividends per share ÷ Market price per share
0.10 = $5 per share ÷ Market price per share
Market price per share = $5 per share ÷ 0.10 = $50
Dividend payout ratio = Dividends per share ÷ Earnings per share
0.20 = $5 per share ÷ Earnings per share
Earnings per share = $5 per share ÷ 0.20 = $25
Price-earnings ratio = Market price per share ÷ Earnings per share
= $50 per share ÷ $25 per share = 2.0

The Following Information Relates to Conejo Corporation for Last Year