The company's price-earnings ratio for Year 2 is closest to:

A) 19.00
B) 12.53
C) 7.46
D) 1.52

Question

The company's price-earnings ratio for Year 2 is closest to:A) 19.00B) 12.53C) 7.46D) 1.52

Ankush Bhardwaj · Accepted Answer

Final Answer : A, Explanation :  Earnings per share = Net Income ÷ Average number of common shares outstanding*= $18,400 ÷ 60,000 shares = $0.31 per share (rounded)*Number of common shares outstanding = Common stock ÷ Par value= $240,000 ÷ $4 per share = 60,000 sharesPrice-earnings ratio = Market price per share ÷ Earnings per share= $5.89 ÷ $0.31 = 19.00 (rounded)Reference: CH14-Ref25Recher Corporation's common stock has a par value of $3 per share and has been stable at a total value of $270,000 on the company's balance sheet for several years.The total stockholders' equity at the end of this year was $1,023,000 and at the beginning of the year was $1,010,000.Net income for the year was $17,500.Dividends on common stock during the year totaled $4,500.The market price of common stock at the end of the year was $3.76 per share.

The company's price-earnings ratio for Year 2 is closest to:

A) 19.00
B) 12.53
C) 7.46
D) 1.52

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