Presented below are selected data from the financial statements of Parade Corp. $\begin{array}{lrr}&2017&2018\
\text { Net income } & \$ 150,000 & \$ 123,000 \
\text { Weighted average number of common shares outstanding } & 105,000 & 95,000 \
\text { Market price per share of common stock at the end of the year } & \$ 12.00 & \$ 10.00
\end{array}$The price/earnings ratio for 2018 is

A)0.80 to 1.
B)1.43 to 1.
C)8.39 to 1.
D)12.50 to 1.

Question

Presented below are selected data from the financial statements of Parade Corp. $\begin{array}{lrr}&2017&2018\
\text { Net income } & \$ 150,000 & \$ 123,000 \
\text { Weighted average number of common shares outstanding } & 105,000 & 95,000 \
\text { Market price per share of common stock at the end of the year } & \$ 12.00 & \$ 10.00
\end{array}$The price/earnings ratio for 2018 is

A)0.80 to 1.
B)1.43 to 1.
C)8.39 to 1.
D)12.50 to 1.

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 2018, EPS is $\$123,000 / 95,000 shares = \$1.295$. The market price per share at the end of 2018 is \$10.00. Therefore, the P/E ratio for 2018 is $\$10.00 / \$1.295 = 7.72$, which is not an option provided. However, the correct approach to finding the P/E ratio is dividing the market price per share by the EPS, and the closest option to the calculated value is option C, which suggests a possible mistake in the calculation or in the interpretation of the options. The correct calculation should yield a P/E ratio that closely aligns with one of the provided options, and based on the data and the typical method of calculating P/E ratio, option C seems to be the intended correct choice despite the discrepancy in calculation.

Presented Below Are Selected Data from the Financial Statements of Parade