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# Earnings Per Share and Price Earnings Ratio

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1. Burger Palace had earnings after taxes of \$900,000 in the year 2009 with 301,000 shares outstanding. On January 1, 2010, the firm issued 32,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 28 percent.
(a) Compute earnings per share for the year 2009. (Round your answer to 2 decimal places.
Earnings per share = \$ ..........
(b) Compute earnings per share for the year 2010.

2. Fabulous Day Spa had earnings after taxes of \$293,000 in 2009 with 200,000 shares of stock outstanding. The stock price was \$45.80. In 2010, earnings after taxes increased to \$320,000 with the same 200,000 shares outstanding. The stock price was \$74.00.
(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. (Enter only numeric values. Round your intermediate calculations and final answers to 2 decimal places).
Earnings per share = \$..........
P/E ratio =..............
(b) Compute earnings per share and the P/E ratio for 2010. (Enter only numeric values. Round your intermediate calculations and final answers to 2 decimal places.)
Earnings per share is \$...................
P/E ratio is ...............
(c) Why the P/E ratio changed? (Round your intermediate calculations and final answers to 2 decimal places).

#### Solution Preview

Please see the attached Word 97-2003 document.

1. Burger Palace had earnings after taxes of \$900,000 in the year 2009 with 301,000 shares outstanding. On January 1, 2010, the firm issued 32,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 28 percent.
(a) Compute earnings per share for the year 2009. (Round your answer to 2 decimal places.
Earnings per share =\$2.99 (\$900,000/301,000 shares)

(b) Compute ...

#### Solution Summary

This solution illustrates how to compute a company's earnings per share and price/earnings ratio.

\$2.19