Selected financial information is shown below. Additionally we know that cash di

Question

Selected financial information is shown below. Additionally we know that cash dividends declared and paid during YEAR 2 totaled $173,000, of which $20,000 were preferred dividends. The market price of a share common stock on December 31, Year 2 was $200. Use the information to calculate the earnings per share (EPS) and the price earnings (P-E) ratio as of December 31, YEAR 2. Round your answers to two places after the decimal point.

Year 2 Year 1
Stockholder’s Equity:
Preferred stock, $10 par, 10% $200,000 $200,000
Common stock, $10 par $200,000 $200,000
Additional paid-in capital common stock 180,000 180,000
Retained Earnings 1,460,000 1,340,000
Total stockholders’ equity $2,500,000 $2,430,000
Total liabilities & stockholders’ equity $2,500,000 $2,430,000
Net Income $300,000

Explanation / Answer

1.Earning per share (EPS) for year 2 Earning per share = Net income - preferred Dividends/Weighted Average of common share outstanding                            = $300,000 - $20,000/20,000                            = $14 2. Price-Earning Ratio: Price Earning Ratio = Market price of stock/Earning per share                                = $200/$14                                = $14.29 Earning per share = Net income - preferred Dividends/Weighted Average of common share outstanding                            = $300,000 - $20,000/20,000                            = $14 2. Price-Earning Ratio: Price Earning Ratio = Market price of stock/Earning per share                                = $200/$14                                = $14.29

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