Use the following information for questions 93-95.
The following data are provided for Croatia Corp.'s last two fiscal years: Additional information:
On May 1, 2021, 6,000 common shares were issued. Although dividends had been declared regularly up to December 31, 2020, preferred dividends were NOT declared during 2021. The market price of the common shares was $ 100 at December 31, 2021.
-The price earnings ratio for 2021 is
A) 12.22.
B) 13.76.
C) 14.99.
D) 15.55.

Question

Use the following information for questions 93-95.
The following data are provided for Croatia Corp.'s last two fiscal years:  Additional information:
On May 1, 2021, 6,000 common shares were issued. Although dividends had been declared regularly up to December 31, 2020, preferred dividends were NOT declared during 2021. The market price of the common shares was $ 100 at December 31, 2021.
-The price earnings ratio for 2021 is
A) 12.22. 
B) 13.76. 
C) 14.99. 
D) 15.55.

Quizplus · Accepted Answer

To calculate the price earnings ratio, we need to divide the market price per share by the earnings per share. The market price per share is given as $100. To calculate the earnings per share, we need to subtract preferred dividends from net income and divide by the number of common shares outstanding.

Net income for 2021 = $120,000 
Preferred dividends for 2021 = $0 
Common shares outstanding at December 31, 2021 = 16,000 (10,000 + 6,000 issued on May 1, 2021)

Earnings per share = ($120,000 - $0) / 16,000 = $7.50 per share

So, the price earnings ratio for 2021 is $100 / $7.50 = 13.33.

The closest answer choice is B (13.76), so that is the best choice.

Use the Following Information for Questions 93-95