Weightman Corporation's net operating income in Year 2 was $76,385, net income before taxes was $55,385, and the net income was $36,000. Total common stock was $200,000 at the end of both Year 2 and Year 1. The par value of common stock is $4 per share. The company's total stockholders' equity at the end of Year 2 amounted to $983,000 and at the end of Year 1 to $950,000. The market price per share at the end of Year 2 was $7.92. The company's price-earnings ratio for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A) 7.14
B) 0.58
C) 5.18
D) 11.00

Question

Quizplus · Accepted Answer

The price-earnings (P/E) ratio is calculated by dividing the market price per share by the earnings per share (EPS). First, calculate the EPS by dividing the net income by the total number of shares. The total number of shares is the total common stock divided by the par value per share: $200,000 / $4 = 50,000 shares. EPS = $36,000 / 50,000 = $0.72. Then, calculate the P/E ratio: $7.92 / $0.72 = 11.00.

Weightman Corporation's Net Operating Income in Year 2 Was $76,385