Spincic Corporation has provided the following data:
The market price of common stock at the end of Year 2 was $4.13 per share.The company's price-earnings ratio for Year 2 is closest to:
A) 0.52
B) 8.10
C) 6.16
D) 12.52

Question

Spincic Corporation has provided the following data:
 The market price of common stock at the end of Year 2 was $4.13 per share.The company's price-earnings ratio for Year 2 is closest to:
A) 0.52 
B) 8.10 
C) 6.16 
D) 12.52

Quizplus · Accepted Answer

Earnings per share = Net Income ÷ Average number of common shares outstanding*
= $33,000 ÷ 100,000 shares = $0.33 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $200,000 ÷ $2 per share = 100,000 shares
Price-earnings ratio = Market price per share ÷ Earnings per share
= $4.13 ÷ $0.33 = 12.52 (rounded)

Spincic Corporation Has Provided the Following Data