The following balance sheets at the end of each of the first two years of operat
ID: 2372465 • Letter: T
Question
The following balance sheets at the end of each of the first two years of operations indicate the following:
Total current assets:
2010- $600,000 2009- $560,000
Total investments:
2010- 60,000 2009- 40,000
Total property, plant, and equipment:
2010- 900,000 2009- 700,000
Total current liabilities:
2010- 125,000 2009- 80,000
Total long-term liabilities:
2010- 350,000 2009- 250,000
Preferred 9% stock, $100 par
2010- 100,000 2009- 100,000
Common stock, $10 par
2010- 600,000 2009- 600,000
Paid-in capital in excess of par-common stock:
2010- 60,000 2009- 60,000
Retained earnings:
2010- 325,000 2009- 210,000
If net income is $115,000 and interest expense is $30,000 for 2012, and the market price is $30, what is the price-earnings ratio on common stock for 2012 (round to one decimal point)?
a. 14.4
b. 16.9
c. 13.3
d. 12.1
Explanation / Answer
Hi,
Please find the answer as follows:
P/E Ratio = MPS/EPS = 30/(115000-9000)/60000 = 16.98 (9000 is deducted from net income on account of preference dividend and 60000 indicates the number of O/S- shares.)
Option B (16.9) is correct.
Thanks.
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