Question

Marigold Corporation had net income of $170000 and paid dividends to common stockholders of $51000 in 2019. The weighted average number of shares outstanding in 2019 was 34000 shares. Marigold Corporation's common stock is selling for $32 per share on the New York Stock Exchange. Marigold Corporation's price-earnings ratio is :__________

a. 4.92 times.
b. 9.14 times.
c. 6.40 times.
d. 5.00 times.

Answer 1

P/E ratio = 6.40 times

Option c is the correct answer.

Step-by-step explanation:

The P/E ratio or price earnings ratio measures the price that the investors are willing to pay for each $1 of earnings of the company. It is calculated as follows,

P/E ratio = Price per share / Earnings per share

We can calculate the earnings per share by dividing the net income by the number of shares outstanding.

P/E ratio = 32 / (170000 / 34000)

P/E ratio = 6.40 times