Asked by Danielle Marie on May 07, 2024
Verified
A company reports the following:
Net income$270,000
Preferred dividends$10,000
Shares of common stock outstanding20,000
Market price per share of common stock$36.40
?Calculate the company's price-earnings ratio. Round your answer to one decimal place.
Net Income
The total profit of a company after subtracting all expenses from revenue.
Preferred Dividends
Payments made to preferred stockholders, prioritized over dividends to common stockholders.
Common Stock
Common Stock represents equity ownership in a corporation, giving shareholders voting rights and a residual claim on corporate earnings and assets.
- Compute and elucidate the significance of dividend yield and the price-earnings (P/E) ratio for investor considerations.
Verified Answer
AG
Artur GertihMay 14, 2024
Final Answer :
Price-Earnings Ratio = Market Price per Share of Common Stock/Earnings per Share on Common Stock?
Earnings per Share on Common Stock = (Net Income - Preferred Dividends)/Shares of
Common Stock Outstanding
Earnings per Share = ($270,000 - $10,000)/20,000
Earnings per Share = $13.00
?Price-Earnings Ratio = $36.40/$13.00
Price-Earnings Ratio = 2.8
Earnings per Share on Common Stock = (Net Income - Preferred Dividends)/Shares of
Common Stock Outstanding
Earnings per Share = ($270,000 - $10,000)/20,000
Earnings per Share = $13.00
?Price-Earnings Ratio = $36.40/$13.00
Price-Earnings Ratio = 2.8
Learning Objectives
- Compute and elucidate the significance of dividend yield and the price-earnings (P/E) ratio for investor considerations.
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