Chapter 2, Problem 18P

Botox Facial Care had earnings after taxes of $\text{\$370,000}$ in 20X1 with 200,000 shares of stock outstanding. The stock price was $\text{\$31}\text{.50}$ . In 20X2, earnings after taxes increased to $\text{\$436,000}$ with the same 200,000 shares outstanding. The stock price was $\text{\$42}\text{.00}$

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.

b. Compute earnings per share and the P/E ratio for 20X2.

c. Give a general explanation of why the P/E ratio changed.