Kelemen, Inc provides the following information for 2017
Net income $260,000
Market price per share of common stock $50 per share
Dividends paid $190,000
Common stock outstanding at Jan. 1, 2017 150,000 shares
Common stock outstanding at Dec. 31, 2017 210,000 shares
The company has no preferred stock outstanding. Calculate the price/earnings ratio of common stock. (Round any intermediate calculations and your final answer to two decimal places.)
A) 40.32 times
B) 50.00 times
C) 34.72 times
D) 28.90 times
C .C)
Net income $260,000
Average number of common shares outstanding / 180,000
Earnings per share* $1.44
Market price per share $50
Price/earnings ratio** 34.72 times
* Earnings per share = (Net income- Preferred dividend) / Weighted average number of common shares outstanding
**Price/earnings ratio = Market price per share of common stock / Earnings per share
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