Boggs Company has 40,000 shares of common stock outstanding.The book value per share of this stock was $60.00 and the market value per share was $75.00 at the end of the year.Net income for the year was $400,000.Interest on long term debt was $40,000.Dividends paid to common stockholders were $3.00 per share.The tax rate was 30%.The company's price-earnings ratio at the end of the year was:

Question

Quizplus · Accepted Answer

Earnings per share = (Net Income - Preferred Dividends)
F1F1F1S1F1F1F10 Average number of common shares outstanding*
= $400,000 F1F1F1S1F1F1F10 40,000 shares = $10 per share
Price-earnings ratio = Market price per share F1F1F1S1F1F1F10 Earnings per share (see above)
= $75 per share F1F1F1S1F1F1F10 $10 per share = 7.50

Boggs Company Has 40,000 Shares of Common Stock Outstanding