Doonan Corporation has provided the following financial data from its balance sheet and income statement: The market price of common stock at the end of Year 2 was $4.79 per share. The company's price-earnings ratio for Year 2 is closest to:
A)0.76
B)10.64
C)16.52
D)7.73

Question

Doonan Corporation has provided the following financial data from its balance sheet and income statement:  The market price of common stock at the end of Year 2 was $4.79 per share. The company's price-earnings ratio for Year 2 is closest to:
A)0.76 
B)10.64 
C)16.52 
D)7.73

Quizplus · Accepted Answer

To calculate the price-earnings ratio (P/E ratio), we need to divide the market price per share by the earnings per share (EPS).

First, we need to calculate the EPS for Year 2:

EPS = Net Income / Number of Common Shares Outstanding 
EPS = $40,000 / 20,000 
EPS = $2.00

Next, we can calculate the P/E ratio for Year 2:

P/E ratio = Market Price per Share / EPS 
P/E ratio = $4.79 / $2.00 
P/E ratio = 2.395

Therefore, the closest P/E ratio to the given values is 16.52 (C).

Doonan Corporation Has Provided the Following Financial Data from Its