Price/earnings ratio
Response to the following problem:
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
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.
b. Compute earnings per share and the P/E ratio for 2010.
c. Give a general explanation of why the P/E ratio changed.