Based on the information in this table and assuming the company\'s stock price i

Question

Based on the information in this table and assuming the company's stock price is $40 per share the P/E ratio is

a. 2437.5
b. 21.33
c. 2.13
d. 44.44

Johnson Company
balance Sheet

Assets
Cash and marketable securities $300,000
Accounts receivable 1,215,000
inventories 1,747,500
prepaid expenses 24,000
total current assets 3,286,500
fixed assets 2,700,000
less accum depr. 1,087,500
net fixed assets 1,612,500
total assets $4,899,000

Liabilities
accounts payable $240,000
notes payable 825,000
accrued taxes 42,000
total current liabilities $1,107,000
long term debt 975,000
common stock 100,000 shares 100,000
retained earnings 2,717,000
total liabilities and owner's equity $4,899,000

Net sales all credit $6,375,000
less cost of goods sold 4,312,500
selling and administrative expense 1,387,500
depreciation expense 135,000
interest expense 127,000
earnings before taxes $412,500
income taxes 225,000
net income $187,500

common stock dividends $97,500
change in retained earnings $90,000

Explanation / Answer

P/E = stock price per share / earnings per share EPS = net income / # shares (since there is no preferred stock we don't need to subtract preferred dividends from net income) pps = $40, ni = $187,500, #shares = 100,000 P/E = 21.33, answer b.

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