Question

Lerner had net income for 2016 of $104,000.Lerner had 32,000 shares of common stock outstanding at the beginning of the year and 48,000 shares of common stock outstanding at the end of the year.There were 5,000 shares of preferred stock outstanding all year.During 2016,Lerner declared and paid preferred dividends of $30,000.On December 31,2106,the market price of Lerner's common stock is $30 per share and the market price of its preferred stock is $57 per share.What is Lerner's price/earnings ratio? (Round the answer to two decimal places. )

A) 30.81
B) 11.54
C) 13.85
D) 16.22

Answer 1

Answer: D) 16.22

Step-by-step explanation:

Price Earnings ratio = Market Value per share / Earnings per share

Earnings Per Share

`(Net Income - Preferred Dividend)/(Average Common Stock) \\= (104,000 - 30,000)/((32,000 + 48,000)/(2) ) \\= (74,000)/(40,000) \\= 1.85`

Price Earnings ratio = Market Value per share / Earnings per share

= 30/1.85

= 16.22