Firehawk Corporation had net income of $560,000 in 20x5 and paid dividends of $440,000 on 200,000 shares of outstanding common stock.Total stockholders' equity at the end of 20x5 was $2,060,000 and the market price for each share of Firehawk's stock was $58 throughout 20x5.Based on this information,what is the price/earnings ratio for Firehawk's stock?
A)96.67 times.
B)20.71 times.
C)4.83 times.
D)26.36 times.

Question

Quizplus · Accepted Answer

To find the price/earnings (P/E) ratio, we need to divide the market price per share by earnings per share (EPS). First, we need to find the EPS:
EPS = Net Income / Number of Outstanding Shares
EPS = $560,000 / 200,000 = $2.80
Next, we can calculate the P/E ratio:
P/E Ratio = Market Price per Share / EPS
P/E Ratio = $58 / $2.80 = 20.71 times

Therefore, the best choice is B, with the above explanation.

Firehawk Corporation Had Net Income of $560,000 in 20x5 and Paid