Problem 2 18 Price earnings ratio [LO2]
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Botox Facial Care had earnings after taxes of $280,000 in 2009 with 200,000 shares of stock outstanding. The stock price was $30.80. In 2010, earnings after taxes increased to $320,000 with the same 200,000 shares outstanding. The stock price was $40.00.
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| (a) |
Compute earnings per share and the P/E ratio for 2009. The P/E ratio equals the stock price divided by earnings per share. (Enter only numeric values. Round intermediate calculations and EPS answer to 2 decimal places. Omit the “$” sign in your response.)
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2009 |
| Earnings per share |
$ |
| P/E ratio |
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| (b) |
Compute earnings per share and the P/E ratio for 2010. (Enter only numeric values. Round intermediate calculations and EPS answer to 2 decimal places. Omit the “$” sign in your response.)
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2010 |
| Earnings per share |
$ |
| P/E ratio |
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| (c) |
Give a general explanation of why the P/E ratio changed. (Round your intermediate calculations and final answers to 2 decimal places. Omit the “%” sign in your response.)
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| The stock price (Click to select) decreased increased by % while EPS only (Click to select) decreased increased %.
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Problem 2 17 Earnings per share and retained earnings [LO1, 3]
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Quantum Technology had $640,000 of retained earnings on December 31, 2010. The company paid common dividends of $30,000 in 2010 and had retained earnings of $500,000 on December 31, 2009.
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| (a) |
How much did Quantum Technology earn during 2010? (Omit the “$” sign in your response.)
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| Earnings available to common stockholders |
$ |
| (b) |
What would earnings per share be if 40,000 shares of common stock were outstanding? (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
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