Napoli Industries had net income for Year 2 of $650,000.Napoli had an average number of shares outstanding at the end of the year of 500,000 shares.On January 1,Year 2,the market price of Napoli's stock was $20 per share.On December 31,Year 2,the market price was $22 per share.What is the price-earnings ratio for Napoli at the end of Year 2?

Question

Quizplus · Accepted Answer

Earnings per share = Net income ÷ Number of shares of common stock outstanding
Earnings per share = $650,000 ÷ 500,000 shares = $1.30 per share
Price-Earnings Ratio = Market price per share ÷ Earnings per share
Price-Earnings Ratio = $22 ÷ $1.30 = 16.9

Napoli Industries Had Net Income for Year 2 of $650,000