Phelps, Inc. had assets of $87,938, liabilities of $19,174, and 13,190 shares of

Question

Phelps, Inc. had assets of $87,938, liabilities of $19,174, and 13,190 shares of outstanding common stock at December 31, 2015. Net income for 2015 was $9,761. The company had assets of $103,319, liabilities of $23,003, 11,527 shares of outstanding, and its stock was trading at a price of $10 per share at December 31, 2016. Net income for 2016 was $10,719. Required: Calculate EPS for 2016. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Calculate ROE for 2016. (Round your answer to 1 decimal place.) Calculate the Price/Earnings Ratio for 2016. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation / Answer

a. EPS of 2016 = Net Income/ Outstanding Shares

$ 10719/ 11527 = $0.93 per share.

Alternatively, as a denominator, we may take Average Shares also.

b. ROE of 2016 = Net Income/ Shareholder's Equity

Net Income/ (Assets- Liabilities)

=10719/ (103319- 23003)

=13.35%

c. Price Earning Ratio of 2016 = Stock Price/ EPS

= 10/ 0.93

P/E Ratio of 2016 = 10.75

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