Question

Barbur, Inc. reported net income of $20.35 million. During the year the average number of common shares outstanding was 3.7 million. The price of a share of common stock at the end of the year was $5. There were 680,000 shares of preferred stock outstanding on average and no dividends were declared and the preferred stock is non-cumulative.
1A. Use the information above, the EPS is approximately:_____.
a. $0.40.b. $1.76.c. $1.86.d. $2.00.
1B. Use the information above, the Price/Earnings ratio is approximately:_____.a. 2.00.b. 2.50.c. 2.84.d. 12.50.

Answer 1

Answer and Explanation:

The computation is shown below:

a. EPS = Net income  ÷ Outstanding shares

= $20,350,000 ÷ 3,700,000 shares  

= $5.50 per share

b. Price/Earnings ratio = Price of common stock ÷ EPS

= $5 ÷ $5.50

= 0.9091

Hence, the above represent the answer and the options that are given are incorrect