2 Problem 405 Hint MVEBVEx BVEShareMVEShare which is the sto

2. Problem 4.05 Hint: (MVE/BVE)x (BVE/Share)-MVE/Share, which is the stock price Click here to read the eBook: Market Value Ratios Problem 4-5 Price/Earnings Ratio A company has an EPS of $3.45, a book value per share of $33.81, and a market/book ratio of 1.8x. What is its P/E ratio? The stock price should be rounded to the nearest cent. Round your answer to two decimal places.

Solution

Stock price = Book value*market/book ratio = 33.81*1.8 = $               60.86 Price/Earnings ratio = Price/EPS = 60.86/3.45 = 17.64