Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2017, and the market price is $40, what is the price-earnings ratio on common stock (round to one decimal place)? a. 14.9 b. 19.8 c. 17.3 d. 18.4
1. The balance sheets at the end of each of the first two years of operations indicate the following:
2017
2016
Total current assets
$600,000
$560,000
Total investments
60,000
40,000
Total property, plant, and equipment
900,000
700,000
Total current liabilities
125,000
80,000
Total long-term liabilities
350,000
250,000
Preferred 9% stock, $100 par
100,000
100,000
Common stock, $10 par
600,000
600,000
Paid-in capital in excess of par--common stock
60,000
60,000
Retained earnings
325,000
210,000
Based on the above information, if net income is $130,000 and interest expense is $40,000 for 2017, and the market price is $40, what is the price-earnings ratio on common stock (round to one decimal place)?
a. 14.9
b. 19.8
c. 17.3
d. 18.4
The purpose of using the Price-earnings ratio is to determine the market price of a share in relation to its EPS. A stock is considered to be overvalued if the Price-earnings ratio is greater while a lower Price-earnings ratio implies a low share price relative to its earnings per share.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
