Question

company xyz closed at $48.15 per share with a p/e ratio of 16.56. answer the following questions. a. how much were earnings per share? b. does the stock seem overpriced, underpriced, or about right given that the historical p/e ratio is 12 - 14? a. how much were earnings per share? $\square$ (round to the nearest cent as needed )

Explanation:

Step1: Recall P/E ratio formula

The P/E ratio (Price - Earnings ratio) is given by the formula \( \text{P/E ratio}=\frac{\text{Price per share}}{\text{Earnings per share}} \). We need to solve for earnings per share (\( EPS \)), so we can rearrange the formula to \( EPS = \frac{\text{Price per share}}{\text{P/E ratio}} \).

Step2: Substitute the given values

We know that the price per share is \( \$48.15 \) and the P/E ratio is \( 16.56 \). Substituting these values into the formula for \( EPS \), we get \( EPS=\frac{48.15}{16.56} \).

Step3: Calculate the value

Performing the division \( \frac{48.15}{16.56}\approx2.91 \) (rounded to the nearest cent).

Answer:

\( \$2.91 \)