A firm has 50,000,000 shares outstanding with a current market PPS of $25.57. If the firm has total assets of $600M, total liabilities of $175M and net income of $500M, it would have a P/E of _ and a Market-Book ratio of ___. A. 2.56; 3.01 B. 3.01; 2.56 C. 8.25; 5.32 D. 5.32; 8.25

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Nyctalus Nyctalus · Answer 1 · 2019-08-19T11:08:34+02:00

Answer: Option A

Explanation: P/E ratio can be calculated using following formula :-

[tex]P/E\:ratio=\frac{Market\:price}{earning\:per\:share}[/tex]

where,

[tex]earning\:per\:share=\frac{net\:income}{no.\:of\:shares}[/tex]

[tex]earning\:per\:share=\frac{500m}{50m}[/tex]

= $10

putting the values into equation we get :-

[tex]P/E\:ratio=\frac{25.57}{10}[/tex]

= 2.57

similarly, market-book ratio can be calculated as follows :-

[tex]\frac{market\:value\:of\:share}{book\:value\:of\:share}[/tex]

where,

[tex]book\:value=\frac{425m}{50m}[/tex]

= 8.5

now putting the values into equation, we get :-

[tex]\frac{25.57}{8.5}[/tex]

= 3.01