Penny Corporation had profit of $ 250,000 and paid dividends to common shareholders of $ 50,000 in 2021. The weighted average number of shares issued in 2021 was 50,000 shares. Penny Corporation's common shares are selling for $ 40 per share on the Toronto Stock Exchange. Penny Corporation's price-earnings ratio is

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The price-earnings ratio is calculated as the market price per share divided by the earnings per share (EPS). EPS is calculated as (Profit - Dividends) / Weighted average number of shares = ($250,000 - $50,000) / 50,000 = $4. The price-earnings ratio is $40 / $4 = 10 times.

Penny Corporation Had Profit of $ 250,000 and Paid Dividends