Blitzen Corporation had net income of $200,000 and paid dividends to common stockholders of $50,000 in 2014. The weighted average number of shares outstanding in 2014 was 40,000 shares. Blitzen Corporation's common stock is selling for $35 per share on the New York Stock Exchange. Blitzen Corporation's price-earnings ratio is
A)5.6 times.
B)7 times.
C)5 times.
D)9.3 times.

Question

Quizplus · Accepted Answer

To calculate the price-earnings ratio, we divide the market price per share by the earnings per share (EPS).
Earnings per share = Net income / Weighted average number of shares outstanding
Earnings per share = $200,000 / 40,000 = $5 per share
Price-earnings ratio = Market price per share / Earnings per share
Price-earnings ratio = $35 / $5 = 7 times. 
Therefore, the answer is B.

Blitzen Corporation Had Net Income of $200,000 and Paid Dividends