Question

i que sur le previous attempt Problem 2-5 Botox Facial Care had earnings after taxes of $370,000 in 20XX with 200,000 shares of stock outstanding. The share price was $31.50. In 20XY, earnings after taxes increased to $436,000 with the same 200,000 shares outstanding. The share price rose to $42.50 a. Compute earnings per share and the P/E ratio for 20XX. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Earnings per share P/E ratio times b. Compute earnings per share and the P/E ratio for 20XY. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Earnings per share P/E ratio times Prev 2 of 4 !!! Next > e to search

Answer 1

a) For 20XX
Earnings per share is calculated as:	Earnings after tax/Outstanding shares	370,000/200,000 =	$ 1.85
PE Ratio is calculated as:	Price per share/Earnings per share (calculated as above)	31.5/1.85 =	17.03	times
b) For 20XY
Earnings per share is calculated as:	Earnings after tax/Outstanding shares	436,000/200,000 =	$ 2.18
PE Ratio is calculated as:	Price per share/Earnings per share (calculated as above)	42.5/2.18 =	19.50	times
c) Why did P/E ratio change:
Change in stock price in percentage between 20XX and 20XY is (42.5-31.5)/31.5 = 34.92%
Increase in EPS in percentage between 20XX and 20XY is (2.18-1.85)/1.85 = 17.84%
The P/E ratio changed as the stock price INCREASED 34.92% while EPS INCREASED 17.84%