Lark had net income for 2018 of $104,000.Lark had 32,000 shares of common stock outstanding at the beginning of the year and 48,000 shares of common stock outstanding at the end of the year.There were 5000 shares of preferred stock outstanding all year.During 2018,Lark declared and paid preferred dividends of $30,000.On December 31,2018,the market price of Lark's common stock is $30 per share and the market price of its preferred stock is $57 per share.What is Lark's price/earnings ratio at December 31,2018? (Round any intermediate calculations and your final answer to the nearest cent.)

Question

Quizplus · Accepted Answer

Average number of common shares outstanding: (32,000 + 48,000) / 2 = 40,000
Earnings Per Share = (Net income - Preferred dividends) / Average number of common shares outstanding
Earnings Per Share = ($104,000 - $30,000) / 40,000
Earnings Per Share = $1.85
Price/earnings ratio = Market price per share of common stock / Earnings per share
Price/earnings ratio = $30 / $1.85 = 16.22

Lark Had Net Income for 2018 of $104,000