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
12.0
