Answer:
price earning ratio = 19.44 times
so correct option is c. 19.44
Explanation:
given data
net income = $103,000
common stock outstanding beginning = 38,000 shares
common stock outstanding ending = 44,000 shares
preferred stock outstanding = 5,000 shares
paid preferred dividends = $29,000
common stock = $35.00 per share
market price preferred stock = $55.00 per share
to find out
Lark's price earnings ratio
solution
first we get here average no of equity share that is
average no of equity share = common stock outstanding beginning + common stock outstanding ending ÷ 2
average no of equity share = ![\frac{38000+44000}{2}](https://tex.z-dn.net/?f=%5Cfrac%7B38000%2B44000%7D%7B2%7D)
average no of equity share = 41000 share
and
earning per share will be here as
earning per share = ( net income - paid preferred dividends ) ÷ average no of equity share
earning per share = ![\frac{103000-29000}{41000}](https://tex.z-dn.net/?f=%5Cfrac%7B103000-29000%7D%7B41000%7D)
earning per share = $1.80
so here price earning ratio will be as
price earning ratio = ![\frac{market\ price\ common\ share}{earning\ per\ share}](https://tex.z-dn.net/?f=%5Cfrac%7Bmarket%5C%20price%5C%20common%5C%20share%7D%7Bearning%5C%20per%5C%20share%7D)
price earning ratio = ![\frac{35}{1.80}](https://tex.z-dn.net/?f=%5Cfrac%7B35%7D%7B1.80%7D)
price earning ratio = 19.44 times
so correct option is c. 19.44