An analyst gathered the following information for a U.S. company whose common stock is currently priced at $40 per share:
| 2000 | 2001 | 2002 | 2003 | 2004 | |
| Eamings per share | 1.13 | 0.67 | 1.33 | 1.50 | (1.30) |
| Book value per share | 8.48 | 8.91 | 15.75 | 18.37 | 17.65 |
| Retum on equity | 14% | 7% | 7% | 8% | 8% |
Because of the severe cyclical contraction that occurred in 2004 for a major segment of the company's operations, the analyst has decided to normalize earnings using the 2000-2003 period. If the analyst also decides to account for changes in the company's size over time, the most appropriate estimate of the company's 2004 price/earnings (P/E) ratio based on normalized earnings is（ ）。
Using average ROE provides a better estimate of P/E when a company's size has changed. The average ROE is 8.8; an estimate of normal earnings per share can be derived by multiplying average ROE by ending book value per share:
0.088×17.65 per snare=$1.55 normal earnings per share, P/E=40÷1.55=25.8.