The Valencia Company reported net income of $80,000 on 20,000 outstanding common shares.Preferred dividends total $12,000.On the most recent trading day,the preferred shares sold at $50 and the common shares sold at $68.This company's current price-earnings ratio is closest to:
A)15
B)17
C)20
D)None of these answer choices are correct.

Question

Quizplus · Accepted Answer

The current price-earnings ratio is calculated by dividing the current market price per share by the annual earnings per share. The annual earnings per share is calculated by dividing the net income by the number of outstanding shares. In this case, the annual earnings per share is $80,000 / 20,000 = $4.00. The current market price per share is $68. Therefore, the current price-earnings ratio is $68 / $4.00 = 17.

The Valencia Company Reported Net Income of $80,000 on 20,000