A company’s shares trade at \$48 per share and it reports net income of \$12,000,000 with 6,000,000 weighted-average common shares outstanding. What is the company’s price-earnings (P/E) ratio?

• A. $2:1$
• B. $4:1$
• C. $24:1$
• D. $0.5:1$

Answer: (C)

Verified step by step guidance

1. Identify the formula for the price-earnings (P/E) ratio, which is given by: \(\$\text{P/E ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share (EPS)}}\)
2. Calculate the Earnings per Share (EPS) using the formula: \(\$\text{EPS} = \frac{\text{Net Income}}{\text{Weighted-Average Common Shares Outstanding}}\)
3. Substitute the given values into the EPS formula: \(\$\text{EPS} = \frac{12,000,000}{6,000,000}\)
4. Calculate the EPS value (do not finalize the number here, just set up the calculation).
5. Finally, substitute the Market Price per Share (\$48) and the calculated EPS into the P/E ratio formula to find the P/E ratio: \(\$\text{P/E ratio} = \frac{48}{\text{EPS}}\)