Larned Company's price-earnings ratio on December 31,20 × 6 was closest to:

Question

Quizplus · Accepted Answer

To calculate the price-earnings ratio, we need to divide the price per share by the earnings per share. However, we are not given any information about the price of the share, so we cannot calculate the exact price-earnings ratio.

We are only given that the company's net income for the year was $750,000 and its outstanding shares were 150,000. If we assume that the earnings per share for the year were equal to the net income divided by the outstanding shares, we get:

Earnings per share = $750,000 ÷ 150,000 = $5

If we further assume that the price per share was equal to 8.7 times the earnings per share, as given by choice C, we get:

Price per share = $5 × 8.7 = $43.50

Again, this is just an estimate based on the information given, but it is the closest to the choices provided. Therefore, the answer is C) 8.70.

Larned Company's Price-Earnings Ratio on December 31,20 × 6 Was