Tempel Corporation has provided the following data:
The market price of common stock at the end of Year 2 was $2.77 per share.The company's price-earnings ratio for Year 2 is closest to:
A) 9.23
B) 0.35
C) 4.54
D) 13.40

Question

Tempel Corporation has provided the following data:
 The market price of common stock at the end of Year 2 was $2.77 per share.The company's price-earnings ratio for Year 2 is closest to:
A) 9.23 
B) 0.35 
C) 4.54 
D) 13.40

Quizplus · Accepted Answer

Earnings per share = Net Income ÷ Average number of common shares outstanding*
= $12,400 ÷ 60,000 shares = $0.21 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $240,000 ÷ $4 per share = 60,000 shares
Price-earnings ratio = Market price per share ÷ Earnings per share
= $2.77 ÷ $0.21 = 13.19 (rounded)
A more exact answer with less rounding error is 13.40.

Tempel Corporation Has Provided the Following Data