Fulton Company's price-earnings ratio is 8.0,and the market price of its common shares is $32.The company has 3,000 shares of preferred shares outstanding,with each share receiving a dividend of $3.What is the earnings per common share?

Question

Quizplus · Accepted Answer

To calculate the earnings per common share, we need to first find the earnings of the company available to common shareholders.

Total earnings of the company = Price-earnings ratio * Earnings per share 
8.0 = Market price of common shares / Earnings per share

Earnings per share = Market price of common shares / Price-earnings ratio 
= 32 / 8 = $4

Next, we need to find the earnings available to common shareholders after paying dividends to preferred shareholders.

Total dividend paid to preferred shareholders = Number of preferred shares * Dividend per share 
= 3,000 * 3 = $9,000

Earnings available to common shareholders = Total earnings of the company - Dividend paid to preferred shareholders 
= $4 * Number of common shares - $9,000

Since we are not given the number of common shares, we cannot calculate the exact earnings per common share. However, we can see that the earnings per common share will be less than $4, since some of the earnings are paid out as dividends to preferred shareholders.

Therefore, the only feasible choice is B, $4.

Fulton Company's Price-Earnings Ratio Is 8