A company has net income of $90,000; its weighted-average common shares outstanding are 18,000. Its dividend per share is $0.45, its market price per share is $88, and its book value per share is $76. Its price-earnings ratio equals:

Question

Quizplus · Accepted Answer

To calculate the price-earnings ratio (P/E), we need to divide the market price per share by the earnings per share (EPS). We can first find the EPS by dividing the net income by the weighted-average common shares outstanding:

EPS = Net income / Weighted-average common shares outstanding
EPS = $90,000 / 18,000
EPS = $5

Next, we can calculate the P/E ratio:

P/E ratio = Market price per share / EPS
P/E ratio = $88 / $5
P/E ratio = 17.6

Therefore, the answer is choice (B).

A Company Has Net Income of $90,000; Its Weighted-Average Common