Toni and Felix are considering buying stock. They would like to purchase 600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past year:

-What is Sudsy Soap's P/E ratio?

Question

Toni and Felix are considering buying stock. They would like to purchase 600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past year:
 
-What is Sudsy Soap's P/E ratio?

Quizplus · Accepted Answer

To calculate the P/E ratio, divide the current stock price by the earnings per share (EPS) for the past year. 
EPS = (Net income - Preferred dividends) / Total outstanding shares
= (1,400,000 - 280,000) / 400,000 
= 3. 
P/E ratio = Stock price / EPS 
= 35 / 3 
= 11.67. 
Therefore, the P/E ratio is 11.67, and the best choice is C.

Toni and Felix Are Considering Buying Stock