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3 September, 10:49

Chang, Inc.'s balance sheet shows a stockholders equity book value (total common equity) of $750,500. The firm's earnings per share were $3.00 resulting in a price/earnings ratio of 12.25x. There are 50,000 shares of common stock outstanding. What is the price/book ratio

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  1. 3 September, 10:54
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    2.45

    Explanation:

    Given that,

    Stockholders equity book value = $750,500

    Earnings per share = $3.00

    Price-earnings ratio = 12.25

    Common stock outstanding = 50,000 shares

    Market price per share:

    = Earnings per share * Price-earnings ratio

    = $3.00 * 12.25

    = $36.75

    Equity book value per share:

    = Stockholders equity : Common stock outstanding

    = $750,500 : 50,000

    = $15.01

    Price-book ratio:

    = Market price per share : Equity book value per share

    = $36.75 : $15.01

    = 2.45
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