Excerpts from Stys Corporation\'s most recent balance sheet and income statement

Question

Excerpts from Stys Corporation's most recent balance sheet and income statement appear below:

Year 2 Year 1
Total assets $1,475 $1,351
Total liabilities $484 $510
Stockholders’ equity:
Preferred stock, $100 par value, 10% $100 $100
Common stock, $2 par value 208 208
Additional paid-in capital--common stock 187 187
Retained earnings 496 346
Total stockholders’ equity $991 $841

Sales (all on account) $1,540
Cost of goods sold 790
Gross margin 750
Selling and administrative expense 360
Net operating income 390
Interest expense 20
Net income before taxes 370
Income taxes (40%) 148
Net income 222

Dividends on common stock during Year 2 totaled $62 thousand. Dividends on preferred stock totaled $10 thousand. The market price of common stock at the end of Year 2 was $7.6 per share.
The price-earnings ratio for Year 2 is closest to: (Round your intermediate calculations to 2 decimal places.)
A 2.14
B 3.73
C 3.56
D .01

Explanation / Answer

C 3.56 Net Incme is 222 No of shares in common stock is $208/$2 = 104 SO EPS = Net Incme/No of common stock = 222/104 = $2.14 P/E ratio = $7.6/$2.14 = 3.56

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