A company reports the following: Net income $410,000 Preferred dividends $60,000

A company reports the following:

Net income $410,000
Preferred dividends $60,000
Shares of common stock outstanding 50,000
Market price per share of common stock $84

a. Determine the company’s earnings per share on common stock.
b. Determine the company’s price-earnings ratio.

Answer:


a. Earnings per Share 
on Common Stock = 

Shares of Common Stock Outstanding 
Earnings per Share =   ($410,000 – $60,000) ÷ $50,000 
on Common Stock 
Earnings per Share = 
on Common Stock 

$7.00 
b. Price-Earnings Ratio = 
Price-Earnings Ratio = 
Price-Earnings Ratio = 
Market Price per Share of Common Stock 
Earnings per Share on Common Stock 

$84.00 ÷ $7.00 

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