Patti's has net income of $1,800,a price-earnings ratio of 12,and earnings per share of $1.20. How many shares of stock are outstanding?
A) 1,200
B) 1,400
C) 1,500
D) 1,600
E) 1,800

Question

Quizplus · Accepted Answer

We can use the formula:

Price-earnings ratio = Market value per share / Earnings per share

To solve for Market value per share, we can rearrange the formula:

Market value per share = Price-earnings ratio x Earnings per share

Plugging in the given values, we get:

Market value per share = 12 x $1.20 = $14.40

To find the number of shares outstanding, we can use the formula:

Net income = Earnings per share x Number of shares outstanding

Rearranging the formula to solve for Number of shares outstanding, we get:

Number of shares outstanding = Net income / Earnings per share

Plugging in the given values, we get:

Number of shares outstanding = $1,800 / $1.20 = 1,500

Therefore, the best choice is C) 1,500.

Patti's Has Net Income of $1,800,a Price-Earnings Ratio of 12,and