The Following Information Pertains to Cheng Company What Is the Price-Earnings Ratio for Cheng?
A) 6 Times

question 98

Multiple Choice

The following information pertains to Cheng Company. Assume that all statement of financial position amounts represent both average and ending balance figures. Assume that all sales were on credit. All amounts are in thousands except per share items. $\begin{array}{lr}\text { Assets }\\\text { Property, plant and equipment } &¥ 215,000 \\\text { Inventory } & 25,000 \\\text { Accounts receivable (net) } & 30,000 \\\text { Cash and short-term investments } & 40,000 \\\quad \text { Total Assets } & ¥ 310,000\\\\\text { Equity and Liabilities }\\\text { Shareholders' equity-ordinary } &¥ 155,000 \\\text { Non-current liabilities } & 95,000 \\\text { Current liabilities } & 60,000 \\\quad \text { Total Equity and Liabilities } &¥ 310,000\\\\\end{array}$ $\begin{array}{lr}\text { Assets }\\\text { Income Statement }\\\text { Sales revenue } & ¥ 90,000 \\\text { Cost of goods sold } & 45,000 \\\text { Gross margin } & 45,000 \\\text { Operating expenses } & 20,000 \\\quad \text { Net income } &¥25,000\\\\\text { Number of ordinary shares } & 6,000 \\\text { Market price of ordinary shares } & \$ 20 \\\text { Dividends per share } & 1.00\end{array}$ What is the price-earnings ratio for Cheng?

• A) 6 times
• B) 4.2 times
• C) 8.0 times
• D) 4.8 times

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Definitions:

Discount Rate

The interest rate applied in determining the current valuation of future cash flows via discounted cash flow analysis.

Annual Cash Operating Costs

Annual Cash Operating Costs represent the total amount of money a business spends on operating activities during a year, excluding non-cash expenses.

Salvage Value

The projected value left in an asset after it has completed its useful life.

Net Present Value

A calculation that compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account.