Using the balance sheets for Kellman Company, if net income is $100,400 and inte

Question

Using the balance sheets for Kellman Company, if net income is $100,400 and interest expense is $34,800 for Year 2, and the market price of common shares is $48, what is the price-earnings ratio on common stock for Year 2? (Round intermediate calculation and final answer to two decimal places.)

a.1.67

b.28.74

c.9.13

d.8.98

Kellman Company Year 2 Year 1 Total current assets $627,900 $564,400 Total investments 65,500 52,800 Total property, plant, and equipment 928,300 722,500 Total current liabilities 101,100 86,500 Total long-term liabilities 294,900 243,500 Preferred 9% stock, $100 par 97,700 97,700 Common stock, $10 par 549,800 549,800 Paid-in capital in excess of par—Common stock 67,100 67,100 Retained earnings 511,100 295,100

Explanation / Answer

Earning per share = [Net income -preferrred dividend ] /weighted average common shares

     =[100400-8793]/54980

       = 91607/54980

      = $ 1.67 per share

PE =Market price per share /earning per share

        = 48/1.67

        = 28.74

correct option is " B"

**Preferred dividend = 97700*.09=8793

**number of common shares= 549800/10= 54980

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