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30 March, 07:57

A company has net income of $870,000; its weighted-average common shares outstanding are 174,000. Its dividend per share is $1.25, its market price per share is $104, and its book value per share is $100.00. Its price-earnings ratio equals

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  1. 30 March, 08:34
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    Price earnings ratio is $20.8

    Explanation:

    Income available to common shareholders;

    = Net income - Preference dividend

    = $870,000 - $0

    = $870,000

    Weighted average number of shares = 174,000 shares

    Earnings per share (EPS) = Income due to common share holders : Weighted average number of shares

    = $870,000 : 174,000

    = $5 per share

    Since Market price per share (MPS) = $104, therefore;

    Price - Earnings Ratio = MPS : EPS

    = $104 : $5

    = $20.8
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