Question

The common stock of Rob's Discount Furniture is currently selling at $65.20 a share. The company adheres to a 60% dividend payout ratio and has a P/E ratio of 19. There are 42,000 shares of stock outstanding. What is the amount of the annual net income for the firm?

Answer 1

The amount of the annual net income for the firm is $144,123

Step-by-step explanation:

In this question, first we have to apply the P/E ratio formula which is shown below:

P/E ratio = (Market price) ÷ (earning per share)

19 = ($65.20) ÷ (earning per share)

So, the earning per share is 3.4315

Now, we know that,

The earning per shares = (Net income) ÷ (Number of outstanding shares)

3.4315 = (Net income) ÷ (42,000 shares)

So, the net income is $144,123