Question
California Accessories Company had earnings after taxes of $360,000,000 in 2013 with 28,000,000 shares of stock outstanding.
The stock price was $342. In 2014, earnings after taxes increased to $425,000,000 with the same 28,000,000 shares outstanding.
The stock price was $461.00. In 2015, earnings after taxes declined to $215,000,000 with the same 28,000,000 shares outstanding.
The stock price declined to $317.30.
a. Compute earnings per share and the P/E ratio for 2013.
b. Compute earnings per share and the P/E ratio for 2014.
c. Compute earnings per share and the P/E ratio for 2015.
d. Give a general explanation of why the P/E changed.
You might want to consult the textbook to explain this surprising result.