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The kids’ mart has a market-to-book ratio of 3.3, net income of $87,100, a book value per share of $18.50, and 7,500 shares of stock outstanding. what is the price-earnings ratio?

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talkingturkey
I'll try my best.

Given:
market-to-book ratio of 3.3,
net income of $87,100,
a book value per share of $18.50,
7,500 shares of stock outstanding

market to book ratio = Market Value ÷ Book Value
Book Value per share = Total Common S.H.E ÷ Number of Common Shares
Price-earnings ratio = Market Value per share ÷ Earnings per share 
Earnings per share = (Net Income - Dividends on Preferred Stocks) ÷ Ave. Outstanding shares

Book value per share = total common s.h.e / number of common shares

18.50 = total common s.h.e / 7,500

Total common s.h.e = 18.50 * 7,500

Total common S.h.e = 138,750

 

Market-to-book value = market value / book value

3.3 = market value / 138,750

Market value = 3.3 * 138,750

Market value = 457,875

 

Earnings per share = (Net Income – Dividends on Preferred Stocks) / ave. outstanding shares

EPS = 87,100 / 7,500

EPS = 11.61

 

Market value per share = 457,875 / 7,500

MVPS = 61.05

 

Price – Earnings Ratio = Market Value per share / Earnings per share

P/E ratio = 61.05 / 11.61

P/E ratio = 5.26


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