Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $35 per share. The price-earnings ratio is
A) 7 times
B) 14 times
C) 2 times
D) 5 times

Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated as the market price per share divided by the earnings per share (EPS). EPS is calculated as net income divided by the number of shares outstanding. Here, EPS = $250,000 / 50,000 = $5. The price-earnings ratio = $35 / $5 = 7 times.

Richards Corporation Had Net Income of $250,000 and Paid Dividends