Question

Napoli Industries had net income for Year 2 of $650,000. Napoli had an average number of shares outstanding at the end of the year of 500,000 shares. On January 1, Year 2, the market price of Napoli’s stock was $20 per share. On December 31, Year 2, the market price was $22 per share. What is the price-earnings ratio for Napoli at the end of Year 2?

Answer 1

P/E = 18.33

Step-by-step explanation:

price-earnings ratio

`(Market \: Price)/(EPS)`

EPS:
`(income - preferred \: dividends)/(outstanding \: shares)`

There is no preferred stock thus, no preferred dividends.

650,000 / 500,000 = 1.3 dollars per share

22 / 1.2 = 18,33