The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets Cash and short-term investments $30,000 Accounts receivable (net) 20,000 Inventory 15,000 Property, plant, and equipment 185,000 Total assets $250,000 Liabilities and Stockholders' Equity Current liabilities $45,000 Long-term liabilities 70,000 Stockholders' equity-Common 135,000 Total liabilities and stockholders' equity $250,000 Income Statement Sales $85,000 Cost of goods sold 45,000 Gross margin $40,000 Operating expenses (15,000) Interest expense (5,000) Net income $20,000 Number of shares of common stock outstanding 6,000 Market price of common stock $20 Total dividends paid $9,000 Cash provided by operations $30,000 What is the price-earnings ratio for Diane Company?

a. 8.0 times

b. 2.5 times

c. 6.0 times

d. 4.0 times

Question

Uriel Russo

Business

24 July, 11:53

The following information pertains to Diane Company. Assume that all balance sheet amounts represent both average and ending balance figures and that all sales were on credit. Assets Cash and short-term investments $30,000 Accounts receivable (net) 20,000 Inventory 15,000 Property, plant, and equipment 185,000 Total assets $250,000 Liabilities and Stockholders' Equity Current liabilities $45,000 Long-term liabilities 70,000 Stockholders' equity-Common 135,000 Total liabilities and stockholders' equity $250,000 Income Statement Sales $85,000 Cost of goods sold 45,000 Gross margin $40,000 Operating expenses (15,000) Interest expense (5,000) Net income $20,000 Number of shares of common stock outstanding 6,000 Market price of common stock $20 Total dividends paid $9,000 Cash provided by operations $30,000 What is the price-earnings ratio for Diane Company?

a. 8.0 times

b. 2.5 times

c. 6.0 times

d. 4.0 times

+2

Answers (1)

Know the Answer?

Donna Mack · Answer 1

c. 6.0 times

Explanation:

The formula and the calculation of the price earnings ratio is shown below:

= (Market price per share) : (Earning per share)

where,

Market price per share is $20

And, earnings per share would be

= Net earnings per share : Number of outstanding common stock shares

= $20,000 : 6,000

= $3.3333

Now put these values in the formula above

So, the value would be equal to

= $20 : 3.3333

= 6 times