Stout Corporation had net income of $200,000 and paid dividends to common stockholders of $40,000 in 2013.The weighted average number of shares outstanding in 2013 was 50,000 shares.Stout Corporation's common stock is selling for $75 per share on the New York Stock Exchange. Stout Corporation's price-earnings ratio is

Question

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The price-earnings ratio is calculated by dividing the market price per share by the earnings per share. The earnings per share is calculated by dividing the net income by the weighted average number of shares outstanding. In this case, the net income is $200,000, the weighted average number of shares outstanding is 50,000 shares, and the market price per share is $75. Therefore, the earnings per share is $200,000 / 50,000 shares = $4.00. The price-earnings ratio is $75 / $4.00 = 18.8 times.

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