Use this information for Kellman Company to answer the question that follow. The

Question

Use this information for Kellman Company to answer the question that follow. The balance sheets at the end of each of the first two years of operations Year 2 Year 1 $622,300 $575,600 54,400 771,500 88,600 291,900 245,700 88,400 540,500540,500 64,100 374,200 64,700 920,700 118,000 Total property, plant, and equipment Total current liabilities Total long-term liabilities Preferred 9% stock, $100 par Common stock, $10 par Paid-in capital in excess of p Retained earnings 88,400 mon stock 64,100 504,800 Using the balance the price-earnings ratio on common stock for Year 2? (Round intermediate calculation and final answer to two decimal places.) sheets for Kelman Company, if net income is $111,300 and interest expense is $33,800 for Year 2, and the market price of common Oa. 9.64 Ob. 9.83 Oc. 26.18 d. 1.91 PreviousNext

Explanation / Answer

Answer c. 26.18

Explanation :

Earning per share in Year 2 = (Net Income - Preferred Dividend) / Number of common shares

=[ $111,300 - ($88,400 * 9 %) ] / 54,050 shares = $111,300 - $7,956) / 54,050 shares = $1.91

Price - earning ration in Year 2 = Market price per share / Earning per share = $50 / $1.91 = 26.18

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