Exercise 11-17A Using the P/E ratio LO 11-5 During 2016 the Lake Corporation and

Question

Exercise 11-17A Using the P/E ratio LO 11-5 During 2016 the Lake Corporation and the River Corporation reported net incomes of $294,000 and $234,000, respectively. Both companies had 60,000 shares of common stock issued and outstanding. The market price per share of Lake's stock was $64, while River's sold for $68 per share. Required a. Determine the P/E ratio for each company. (Do not round intermediate calculations. Round your answers to the nearest whole number.) Company P/E Ratio Lake Corporation River Corporation b. Based on the P/E ratios computed in Requirement a, which company do investors believe has the greater potential for growth in income? O River Corporation O Lake Corporation

Explanation / Answer

a P/E ratio Lake corporation 13 =64/(294000/60000) River corporation 17 =68/(234000/60000) b River corporation

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