Dooley Corporation had net income of $200,000 and paid dividends to ordinary shareholders of $40,000 in 2014. The weighted average number of shares outstanding in 2014 was 50,000 shares. Dooley Corporation's ordinary shares are selling for $35 per share Dooley Corporation's price-earnings ratio is
A) 5 times.
B) 8.8 times.
C) 4 times.
D) 10.9 times.

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings per share (EPS) by dividing the net income by the weighted average number of shares outstanding:
EPS = Net Income / Weighted Average Number of Shares Outstanding
EPS = $200,000 / 50,000 shares
EPS = $4 per share
Then, we can calculate the price-earnings ratio (P/E ratio) by dividing the market price per share by the EPS:
P/E ratio = Market Price per Share / EPS
P/E ratio = $35 per share / $4 per share
P/E ratio = 8.75 times or 8.8 times (rounded to one decimal place)
Therefore, the best choice is B (8.8 times).

Dooley Corporation Had Net Income of $200,000 and Paid Dividends