Question

Earnings per Share and Price-Earnings Ratio A company reports the following: Net income $1,306,000 Preferred dividends $74,000 Shares of common stock outstanding 80,000 Market price per share of common stock $97.02 a. Determine the company's earnings per share on common stock. Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required. $ b. Determine the company's price-earnings ratio. Round to one decimal place.

Answer 1

(a) The company's earnings per share on common stock is $ 15.40

(b) The company's price-earnings ratio is 6.3

Step-by-step explanation:

Net income = $1,306,000

Preferred dividends = $74,000

Shares of common stock outstanding = 80,000 shares

Market price per share of common stock = $97.02

(a) Earnings per share = (Net income−Preference dividend ) ÷ Shares outstanding

= ($1,306,000−$74,000 ) ÷ 80,000 shares

= $1,232,000 ÷ 80,000 shares

= $ 15.4

(b) Price-Earnings ratio = Market price per share ÷ Earnings per share

= $97.02 ÷ $15.40 per share

= 6.3

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