Net income $ 209,600 Preferred stock outstanding, 12% cumulative $ 80,000 Market price per share of common stock $ 24.00 Total Stockholders' Equity $ 1,240,000 Average number of common shares outstanding 100,000 shares Number of common shares outstanding at end of the accounting period 120,000 shares Dividends per share on common stock $ 0.50 per share.

Based on this information the company's price-earnings ratio:

(a). 5 to 1

(b). 12 to 1

(c). 2 to 1

(d). 10 to 1

Question

Arjun Wang

Business

19 January, 08:59

Net income $ 209,600 Preferred stock outstanding, 12% cumulative $ 80,000 Market price per share of common stock $ 24.00 Total Stockholders' Equity $ 1,240,000 Average number of common shares outstanding 100,000 shares Number of common shares outstanding at end of the accounting period 120,000 shares Dividends per share on common stock $ 0.50 per share.

Based on this information the company's price-earnings ratio:

(a). 5 to 1

(b). 12 to 1

(c). 2 to 1

(d). 10 to 1

+2

Answers (1)

Know the Answer?

Marcelo Daugherty · Answer 1

Option (B) is correct.

Explanation:

Earning available for equity stockholders:

= Net Income - Preferred stock dividend

= $209,600 - ($80,000 * 12%)

= $209,600 - $9,600

= $200,000

Earning Per Share:

= Earning available for equity stockholders : Average number of common shares outstanding

= $200,000 : 100,000

= $2

Price-Earning Ratio = Price of Share : Earning Per Share

= $24 : $2

= 12 Times or 12:1