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On December​ 31, 2014​, Renda​'s common stock sold for per share. At that​ price, how much did investors say​ $1 of the​ company's net income was​ worth?

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Question Completion:

On December​ 31, 2014​, Renda​'s common stock sold for $35 per share. At that​ price, how much did investors say​ $1 of the​ company's net income was​ worth? Earnings per share = $1.50

Answer:

Renda Company

The value of $1 of the company's net income by investors was:

$23.33

Step-by-step explanation:

a) Data and Calculations:

Market price of Renda's common stock = $35 per share

Earnings per share = $1.50

This means that investors' value on $1 = $35/$1.50 = $23.33

b) Investors in Renda's common stock place a value of $23.33 for each $1 of the company's net income. This is why they can afford to pay $35 per share in order to benefit from $1 of the company's earnings. This calculation is based on the price-earnings ratio, which relates the company's share price to the earnings per share.

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