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A company reports the following: Net income $270,000 Preferred dividends $10,000 Shares of common stock outstanding 20,000 Market price per share of common stock $36.40 Calculate the company's price-earnings ratio. Round your answer to one decimal place.

Respuesta :

Answer:

$2.8

Explanation:

The computation of the price earning ratio is shown below:

Price earnings ratio = Market price per share ÷ earnings per share

where,

Earnings per share = (Net income - Preferred dividends) ÷ (outstanding common shares )

= ($270,000 - $10,000) ÷ (20,000  shares)

= 13 per share

And, the market price per share is $36.40

So, the price earning ratio is  

= $36.40 ÷ $13

= $2.8

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