Question

Weightman Corporation's net operating income in Year 2 was $76,385, net income before taxes was $55,385, and the net income was $36,000. Total common stock was $200,000 at the end of both Year 2 and Year 1. The par value of common stock is $4 per share. The company's total stockholders' equity at the end of Year 2 amounted to $983,000 and at the end of Year 1 to $950,000. The market price per share at the end of Year 2 was $7.92. The company's price-earnings ratio for Year 2 is closest to:
0.58
11.00
5.18
7.14

Answer 1

Answer:

11.00

Explanation:

$Earnings \: per \: share = \frac{net \: income}{shares}$

36,000 net income

200,000 common stock / $4 per share= 50,000 shares

36,000 / 50,000 = 0.72 earnings per share

$price-earnings \: ratio = \frac{market\: price}{EPS}$

7.92 / 0.72 = 11