d. HoW thhe st Exercise 11-17A Using the PIE ratio d net incomes of shares of co

Question

d. HoW thhe st Exercise 11-17A Using the PIE ratio d net incomes of shares of common stock During 2016 the Lake Corporation and the River Corporation reporte S700,000 and S960,000, respectively. Both companies had 200,000 issued and outstanding. The market price per share of Lake's stock was $50, whne for $85 per share. Required a. Determine the P/E ratio for each company Based on the P/E ratios computed in Requirement a, which company do investors believe has the greater potential for growth in income? b. Exercise 11-18A The PIE ratio

Explanation / Answer

a) Price earning ratio = MPS/EPS

Earning per share : Lake corporation = 700000/200000=3.5; River corporation = 960000/200000 = 4.80

Lake corporation = 50/3.5 = 14.29 Times

River corporation = 85/4.8 = 17.71 Times

b) Lake corporation gives greater potential for growth in income

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