Orchard Corporation\'s capital stock at December 31 consisted of the following:

Question

Orchard Corporation's capital stock at December 31 consisted of the following:
a. Common Stock, $2 par value; 100,000 shares authorized, issued, and outstanding.
b. 10% noncumulative, nonconvertible preferred stock, $100 par value; 1,000 shares authorized, issued, and outstanding.

Orchard's common stock, whick is listed on a major stock exchange, was quoted at $4 per share on December 31. Orchard's net income for the year ended Dec 31 was $50,000. The yearly preferred dividend was declared. No capital stock transactions occurred. What was the price earnings ratio on Orchard's common stock at dec 31?

a. 6 to 1
b. 8 to 1
c. 10 to 1
d. 16 to l

Explanation / Answer

EPS = (net income - preferred dividends)/weighted average common shares outstanding =(50,000 - 10,000)/100,000 = 0.4 price-earnings ratio = market value (price) per share/earnings per share = 4/0.4 = 10, so answer is C, 10 to 1 if you are interested in the calculation for preferred dividends it would be: 100 par value * 1,000 shares * 10% = 10,000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.