Question

Vessels Corporation's net income for the most recent year was $2,532,000. A total of 200,000 shares of common stock and 200,000 shares of preferred stock were outstanding throughout the year. Dividends on common stock were $3.80 per share and dividends on preferred stock were $1.25 per share. The earnings per share of common stock is closest to:A. $12.66. B. $8.86. C. $7.61. D. $11.41.

Answer 1

• The earnings per share of common stock is closest to

D. $11.41.

Step-by-step explanation:

To find the Price-Earning Ratio first, it's necessary to deduct from the Net Income the part corresponding to Preferred Stock,

which is , $2,532,000 - (200,000*1,25= $250,000) = $2,282,000

Then we calculate the Earning/Share Ratio : $2,282,000/200,000 = 11,41

Shares of Common stock outstanding 200.000

Shares of Preferred stock outstanding 200.000*$1,25 = $250.000

NET INCOME Available $2,282,000 = $ 2,532,000 - $250,000