During 2014, Desny Corporation reported after-tax net income of $3,890,000. Duri

Question

During 2014, Desny Corporation reported after-tax net income of $3,890,000. During the year, the number of shares of stock outstanding remained constant at 10,000 of $100 par, 9 percent preferred stock and 400,000 shares of common stock. The company’s total stockholders’ equity is $20,000,000 at December 31, 2014. Desny Corporation’s common stock was selling at $52 per share at the end of its fiscal year. All dividends for the year have been paid, including $4.80 per share to common stockholders.

Required a. Compute the earnings per share. (Round your answer to 2 decimal places.) c. Compute the price-earnings ratio. (Round intermediate calculations and answer to 2 decimal

Explanation / Answer

Earnings Per share = (Net Income - Dividend on Preferred stock) / Average Outstanding Common Shares

Earnings Per share = (3890000 - [(10000x100)x9%]/400000

Earnings per Share = 3890000-90000 /400000

Earnings Per share = $9.5

Price - Earnings ratio = MArket value Price per share /Earnings per share

P/E ratio = 52/9.5 = 5.47

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