Question

Daniel Corporation had net income for 2018 of $ 74 comma 000. Daniel had 12 comma 000 shares of common stock outstanding at the beginning of the year and 17 comma 000 shares of common stock outstanding at the end of the year. There were 12 comma 000 shares of preferred stock outstanding all year. During​ 2018, Daniel declared and paid preferred dividends of $ 25 comma 000. On December​ 31, 2018, the market price of​ Daniel's common stock is $ 46.00 per share and the market price of its preferred stock is $ 68.00 per share. What is​ Daniel's price/earnings ratio at December​ 31, 2018? ​(Round any intermediate calculations and your fin

Answer 1

Answer:

Given:

Net income = $74000

Shares of common stock = $12000

Shares of preferred stock = $12000

Paid preferred dividends = $25000

Market price of​ Daniel's common stock = $46

Market price of its preferred stock = $68

Therefore, we'll first compute earnings per share:

Earnings per share = $\frac{Net Income - Preferred Dividend }{Average no. of common shares}$

Earnings per share =  $\frac{74000 - 25000}{\frac{12000 + 17000}{2}}$

Earnings per share = 3.379

Now, we'll compute the price-earning ratio:

price-earning ratio = $\frac{Market value per share}{Earnings per share}$

price-earning ratio = $\frac{46}{3.379}$

price-earning ratio = 13.61