Botox Facial Care had earnings after taxes of $320,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was $39.80. In 20X2, earnings after taxes increased to $388,000 with the same 200,000 shares outstanding. The stock price was $50.00.a. Compute earnings per share and the P/E ratio for 20X1. (The P/E ratio equals the stock price divided by earnings per share.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.)    b. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)     c. Why did the P/E ratio change? (Do not round intemediate calculations. Input your answers as percents rounded to 2 decimal places.)

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Asked Feb 6, 2020
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Botox Facial Care had earnings after taxes of $320,000 in 20X1 with 200,000 shares of stock outstanding. The stock price was $39.80. In 20X2, earnings after taxes increased to $388,000 with the same 200,000 shares outstanding. The stock price was $50.00.

a. Compute earnings per share and the P/E ratio for 20X1. (The P/E ratio equals the stock price divided by earnings per share.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

 

 



b. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
  

 

 

 



c. Why did the P/E ratio change? (Do not round intemediate calculations. Input your answers as percents rounded to 2 decimal places.)
  

 

 

 

 

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Expert Answer

Step 1
  1. a) Compute earnings per share and the P/E ratio for 20X1:

           

                        EPS (20X1)     = $320,000 / 200,000

                                                = $1.60

 

            P/E ratio (20X1)         = Price / EPS

                                                = $39.80 / $1.60

                                                = 24.87

 

Therefore, earnings per share are $1.60 and a P/E ratio for 20X1 is 24.87x

Step 2
  1. b) Compute earnings per share and the P/E ratio for 20X2:

 

                        EPS (20X2)     = $388,000 / 200,000

                                                = $1.94

 

                        P/E ratio (20X2)         = Price / EPS

            &nb...

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