Bay Marina, Inc. has net income of $50,500 and has 25,000 shares of stock outstanding. Similar firms have a price-earnings ratio of 20. Given this, what should the market price of Bay Marina, Inc. stock be per share?

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings per share (EPS) of Bay Marina, Inc:

EPS = Net Income / Number of shares
EPS = $50,500 / 25,000 shares
EPS = $2.02 per share

Next, we can use the price-earnings ratio (P/E) to calculate the market price of the stock:

Market Price = P/E ratio * EPS
Market Price = 20 * $2.02 per share
Market Price = $40.40 per share

Therefore, the best choice is C, $40.40 per share.