Tronnes Corporation's net income last year was $1,750,000.The dividend on common stock was $2.60 per share and the dividend on preferred stock was $2.50 per share.The market price of common stock at the end of the year was $57.70 per share.Throughout the year,300,000 shares of common stock and 100,000 shares of preferred stock were outstanding.The price-earnings ratio is closest to:
A)17.85
B)11.54
C)24.04
D)9.89

Question

Quizplus · Accepted Answer

Earnings per share = (Net Income - Preferred Dividends)
F1F1F1S1F1F1F10 Average number of common shares outstanding
= ($1,750,000 - 100,000 shares F1F1F1S1F1F1F10 $2.50 per share)F1F1F1S1F1F1F10 300,000 shares
= ($1,750,000 - $250,000)F1F1F1S1F1F1F10 300,000 shares = $5.00 per share
Price-earnings ratio = Market price per share F1F1F1S1F1F1F10 Earnings per share (see above)
= $57.70 per share F1F1F1S1F1F1F10 $5.00 per share = 11.54

Tronnes Corporation's Net Income Last Year Was $1,750,000