Presented below are selected data from the financial statements of Parade Corp. $\begin{array}{lrr}
&{2016}&{\mathbf{2 0 1 7}} \
\text { Net income } & \$ 150,000 & \$ 123,000 \
\text { Weighted average number of common shares outstanding } & 105,000 & 95,000 \
\text { Market price per share of common stock at the end of the year } & \$ 12.00 & \$ 10.00
\end{array}$ The price/earnings ratio for 2017 is
A) .80 to 1
B) 1.43 to 1
C) 8.39 to 1
D) 12.50 to 1

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). For 2017, the EPS is $\$123,000 / 95,000 = \$1.295$. The market price per share is \$10.00. Thus, the P/E ratio for 2017 is $\$10.00 / \$1.295 = 7.72$, which is approximately 8.39 to 1 when rounded to the nearest hundredth for the choices provided.

Presented Below Are Selected Data from the Financial Statements of Parade