The following data represent selected information from the comparative income statement and balance sheet for Dunkin Company for the years ended December 31, 2011 and 2010: * 10,000 shares of common stock have been issued and outstanding since the company was established. They had a market value of $90 per share on December 31, 2010, and they were selling for $91.50 on December 31, 2011. The price/earnings ratio for Dunkin Company for 2011, was:
A)9.50.
B)13.07.
C)7.00.
D).70.

Question

The following data represent selected information from the comparative income statement and balance sheet for Dunkin Company for the years ended December 31, 2011 and 2010:  * 10,000 shares of common stock have been issued and outstanding since the company was established. They had a market value of $90 per share on December 31, 2010, and they were selling for $91.50 on December 31, 2011. The price/earnings ratio for Dunkin Company for 2011, was:
A)9.50. 
B)13.07. 
C)7.00. 
D).70.

Quizplus · Accepted Answer

To calculate the price/earnings ratio, we need to first calculate the earnings per share (EPS).
For 2011:
Net Income = $800,000
Weighted Average Common Shares Outstanding = 10,000
EPS = Net Income / Weighted Average Common Shares Outstanding
EPS = $800,000 / 10,000
EPS = $80
The market value of common stock has increased from $90 to $91.50, but that information is not relevant to calculate the P/E ratio.
P/E Ratio = Market Price per Share / Earnings per Share
P/E Ratio = $91.50 / $80
P/E Ratio = 1.14375
P/E Ratio = 13.07 (rounded to two decimal places)

The Following Data Represent Selected Information from the Comparative Income