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1. Clem Company’s stock sells for $15 per share. The company has $50 million in earnings....

1. Clem Company’s stock sells for $15 per share. The company has $50 million in earnings. At the beginning of the year they had 102 million shares issued and 4 million of treasury stock and at the end of the year they had 106 million shares issued and 4 million in treasury stock. The Price/Earnings ratio for the company is closest to: A. 31.5 B. 0.5 C. 30.0 D. 3.0

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Answer #1

Weighted average number of shares outstanding = [(102 - 4) + (106 - 4)] / 2 = 100 million

Earnings per share = Earnings / Weighted average number of shares outstanding

= $50 million / 100 million

= $0.5

Price earnings ratio = Market price per share / Earnings per share

= $15 / $0.5

= $30

The answer is C.

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