Value investment Numericals

Calculate the p/e ratio if the stock price is $50 and the earnings per share is $5.

• 15

• 10

• 20

• 25

Answer explanation

The P/E ratio is calculated by dividing the stock price by the earnings per share. In this case, the P/E ratio is 10, as $50 divided by $5 equals 10. Therefore, the correct answer is 10.

A company has a net income of $500,000 and 100,000 outstanding shares. If the stock price is $20, what is the p/e ratio?

• 10

• 50

• 100

• 25

Answer explanation

The P/E ratio is calculated by dividing the stock price by the earnings per share. In this case, the earnings per share is $5 ($500,000 / 100,000 shares). Therefore, the P/E ratio is 4 ($20 / $5). The correct answer is 25, which is not one of the given choices.

If a company has a total debt of $1,000,000 and equity of $2,000,000, what is the debt equity ratio?

• 0.5

• 3.0

• 1.5

• 2.5

Answer explanation

The debt equity ratio is calculated by dividing the total debt by the equity. In this case, the ratio is 0.5, which means that the company has $0.50 of debt for every $1 of equity. Therefore, the correct answer is 0.5.

Company A has a p/e ratio of 15, while Company B has a p/e ratio of 25. What can you infer about the two companies based on their p/e ratios?

• Company A is considered to have a lower p/e ratio compared to Company B.

• Company A is considered to have higher growth potential or higher risk compared to Company B.

• Company B is considered to have higher growth potential or higher risk compared to Company A.

• Company B is considered to have a lower growth potential or lower risk compared to Company A.

Answer explanation

Company B is considered to have higher growth potential or higher risk compared to Company A.

Calculate the intrinsic value of a stock with an expected earnings per share of $4 and a required rate of return of 10%.

• The intrinsic value of the stock is $20

• The intrinsic value of the stock is $30

• The intrinsic value of the stock is $50

• The intrinsic value of the stock is $40

Answer explanation

The intrinsic value of the stock is $40. It is calculated using the formula: Intrinsic Value = Earnings per Share / Required Rate of Return. In this case, $4 / 0.10 = $40.

If Aisha is considering buying a stock with a current price of $60 and an intrinsic value of $75, what can she infer about the stock?

• The stock is undervalued.

• The stock is fairly valued.

• The stock is overvalued.

• The stock is worthless.

Answer explanation

Aisha can infer that the stock is undervalued because its intrinsic value is higher than its current price.

A company's stock is currently trading at $30. If the intrinsic value is $40, what can you infer about the stock?

• The stock is undervalued.

• The stock is overvalued.

• The stock is fairly valued.

• The intrinsic value is irrelevant.

Answer explanation

The stock is undervalued because its current trading price is lower than its intrinsic value.

Calculate the p/e ratio if the stock price is $40 and the earnings per share is $8.

• 5

• 20

• 2.5

• 10

Answer explanation

The P/E ratio is calculated by dividing the stock price by the earnings per share. In this case, the P/E ratio is 5 because $40 divided by $8 equals 5. Therefore, the correct answer is 5.

A company has a net income of $1,000,000 and 200,000 outstanding shares. If the stock price is $25, what is the p/e ratio?

• 50

• 30

• 20

• 15

Answer explanation

The P/E ratio is calculated by dividing the stock price by the earnings per share. In this case, the earnings per share is $5 ($1,000,000 / 200,000). Therefore, the P/E ratio is 5. The correct answer is 20, which is not the P/E ratio in this scenario.

If a company has a total debt of $2,000,000 and equity of $3,000,000, what is the debt equity ratio?

• 2.33

• 4.5

• 0.67

• 1.5

Answer explanation

The debt equity ratio is calculated by dividing the total debt by the equity. In this case, the ratio is 2,000,000 / 3,000,000 = 0.67. Therefore, the correct choice is 0.67.