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Business Accounting Financial Accounting: Information for Decisions

An investor can calculate the price-earnings ratio of the company by dividing the market value per share of the stock by the EPS of the stock. An investor is willing to pay more amount for $1 of the current earnings of the company whose price earnings ratio is higher. To calculate: The price-earnings ratio of the four companies. Also, state the company which is undervalued by the market. Company 1: EPS: $12 Market price per share: $176.40 Price-earnings ratio is calculated as follows: Price -earnings ratio = market value per share EPS = $ 176.40 $ 12 = $ 14.7 Company 2: EPS: $10 Market price per share: $96 Price earnings ratio is calculated as follows: Price earnings ratio = market value per share EPS = $ 96 $ 10 = $ 9.6 Company 3: EPS: $7.50 Market price per share: $93.75 Price earnings ratio is calculated as follows: Price earnings ratio = market value per share EPS = $ 93.75 $ 7.50 = $ 12.5 Company 4: EPS: $50.00 Market price per share: $250.00 Price earnings ratio is calculated as follows: Price earnings ratio = market value per share EPS = $ 250.00 $ 50.00 = $ 5.00 The stock of company 4 is investigated as most undervalued by the market. The market value per share and EPS of the company 4 is highest among all the four companies, but the price earning ratio of company 4 is lowest. Therefore, it is most undervalued stock.

An investor can calculate the price-earnings ratio of the company by dividing the market value per share of the stock by the EPS of the stock. An investor is willing to pay more amount for $1 of the current earnings of the company whose price earnings ratio is higher. To calculate: The price-earnings ratio of the four companies. Also, state the company which is undervalued by the market. Company 1: EPS: $12 Market price per share: $176.40 Price-earnings ratio is calculated as follows: Price -earnings ratio = market value per share EPS = $ 176.40 $ 12 = $ 14.7 Company 2: EPS: $10 Market price per share: $96 Price earnings ratio is calculated as follows: Price earnings ratio = market value per share EPS = $ 96 $ 10 = $ 9.6 Company 3: EPS: $7.50 Market price per share: $93.75 Price earnings ratio is calculated as follows: Price earnings ratio = market value per share EPS = $ 93.75 $ 7.50 = $ 12.5 Company 4: EPS: $50.00 Market price per share: $250.00 Price earnings ratio is calculated as follows: Price earnings ratio = market value per share EPS = $ 250.00 $ 50.00 = $ 5.00 The stock of company 4 is investigated as most undervalued by the market. The market value per share and EPS of the company 4 is highest among all the four companies, but the price earning ratio of company 4 is lowest. Therefore, it is most undervalued stock.

Solution Summary: The author explains how an investor calculates the price-earnings ratio of the four companies by dividing the market value per share by the EPS.

Financial Accounting: Information for Decisions

Financial Accounting: Information for Decisions

8th Edition

ISBN: 9781259533006

Author: John J Wild

Publisher: McGraw-Hill Education

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Chapter 11, Problem 13E

Chapter 11, Problem 15E

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Chapter 11 Solutions

Financial Accounting: Information for Decisions

Ch. 11 - Prob. 1DQ Ch. 11 - How are organization expenses reported?Ch. 11 - Prob. 3DQ Ch. 11 - What is the difference between authorized shares...Ch. 11 - Prob. 5DQ Ch. 11 - Prob. 6DQ Ch. 11 - Prob. 7DQ Ch. 11 - Prob. 8DQ Ch. 11 - Prob. 9DQ Ch. 11 - Prob. 10DQ

Ch. 11 - Prob. 11DQ Ch. 11 - Prob. 12DQ Ch. 11 - What is the didfference between a stock dividend...Ch. 11 - Prob. 14DQ Ch. 11 - Prob. 15DQ Ch. 11 - Prob. 16DQ Ch. 11 - Prob. 17DQ Ch. 11 - Prob. 18DQ Ch. 11 - Prob. 19DQ Ch. 11 - Prob. 20DQ Ch. 11 - Prob. 21DQ Ch. 11 - Prob. 22DQ Ch. 11 - Prob. 1QS Ch. 11 - Prob. 2QS Ch. 11 - Prob. 3QS Ch. 11 - Prob. 4QS Ch. 11 - Prob. 5QS Ch. 11 - Prob. 6QS Ch. 11 - Prob. 7QS Ch. 11 - Prob. 8QS Ch. 11 - Prob. 9QS Ch. 11 - Prob. 10QS Ch. 11 - Prob. 11QS Ch. 11 - Prob. 12QS Ch. 11 - Prob. 13QS Ch. 11 - Prob. 14QS Ch. 11 - Prob. 15QS Ch. 11 - Prob. 16QS Ch. 11 - Dividend yield A3 Foxburo Company expects to pay a...Ch. 11 - Prob. 18QS Ch. 11 - Prob. 19QS Ch. 11 - Prob. 1E Ch. 11 - Prob. 2E Ch. 11 - Prob. 3E Ch. 11 - Prob. 4E Ch. 11 - Prob. 6E Ch. 11 - Prob. 7E Ch. 11 - York’s outstanding stock consists of 80,000 shares...Ch. 11 - Use the data in Exercise 118 to determine the...Ch. 11 - Prob. 10E Ch. 11 - Prob. 11E Ch. 11 - Prob. 12E Ch. 11 - Prob. 13E Ch. 11 - Prob. 14E Ch. 11 - Prob. 15E Ch. 11 - Prob. 16E Ch. 11 - Prob. 17E Ch. 11 - Prob. 18E Ch. 11 - Prob. 1PSA Ch. 11 - Prob. 2PSA Ch. 11 - Prob. 3PSA Ch. 11 - Prob. 4PSA Ch. 11 - Prob. 5PSA Ch. 11 - Prob. 1PSB Ch. 11 - Prob. 2PSB Ch. 11 - Prob. 3PSB Ch. 11 - Prob. 4PSB Ch. 11 - Refer to Apples financial statements in Appendix A...Ch. 11 - Prob. 2BTN Ch. 11 - Harriet Moore is an accountant for New World...

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