Question

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

Answer 1

Answer:

The price-earnings ratio is closest to 11.54

Explanation:

PE Ratio = Market Price Per Share/Earnings Per Share

Earnings Per Share = Net Income - Dividend on Preferred Shares/Common Outstanding Shares

= (1750000 - 2.5*100000)/300000 = 5 per share

PE Ratio = 57.70/5 = 11.54