A company reports the following:

Question

Line Item Description Amount
Net income $1,601,000
Preferred dividends $91,000
Shares of common stock outstanding 100,000
Market price per share of common stock $188.75
a. Determine the company's earnings per share on common stock. Round your answer to the nearest cent. Use the rounded answer of requirement a for subsequent requirement, if required.
fill in the blank 1 of 2$

b. Determine the company's price-earnings ratio. Round to one decimal place.
fill in the blank 2 of 2

Answer 1

To solve the questions, we'll follow these steps:

a. Determine the company's earnings per share (EPS) on common stock.

1. Calculate Net Income Available to Common Shareholders: \[ \text{Net Income Available to Common Shareholders} = \text{Net Income} - \text{Preferred Dividends} \] \[ = 1,601,000 - 91,000 = 1,510,000 \]

2. Calculate Earnings Per Share (EPS): \[ \text{EPS} = \frac{\text{Net Income Available to Common Shareholders}}{\text{Shares of Common Stock Outstanding}} \] \[ = \frac{1,510,000}{100,000} = 15.10 \]

So, the EPS is $15.10.

b. Determine the company's price-earnings (P/E) ratio.

1. Calculate Price-Earnings Ratio: \[ \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{EPS}} \] \[ = \frac{188.75}{15.10} \approx 12.5 \]

So, the Price-Earnings Ratio is 12.5.

Final Answers:

• a. Earnings per Share (EPS): $15.10
• b. Price-Earnings Ratio (P/E): 12.5