Question

McDaniel Corporation had net income for 2016 of $82,000. McDaniel had 12,000 shares of common stock...

McDaniel Corporation had net income for 2016 of $82,000. McDaniel had 12,000 shares of common stock outstanding at the beginning of the year and 26,000 shares of common stock outstanding at the end of the year. There were 9,000 shares of preferred stock outstanding all year. During​ 2016, McDaniel declared and paid preferred dividends of $26,000. On December​ 31, 2106, the market price of​ McDaniel's common stock is $46 per share and the market price of its preferred stock is $78 per share. What is​ McDaniel's price/earnings​ ratio? (Round any intermediate calculations and your final answer to the nearest​ cent.)

A.18.07

B.26.44

C.15.59

D.14.59

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Answer #1
McDaniel Corporation
Avg. # of Common shares outstanding: (12,000 + 26,000) / 2 = 19,000
Earnings per share = (Net income – preferred dividends) Avg. # of common shares outstanding
Earnings per share = ($82,000 - $26,000) / 19,000 = 2.95
Earnings per share = $2.95
Price / earnings ratio = Market price per share of common stock / earnings per share
Price/ earnings ratio = $46 / $2.95 = 15.59
Answer : C.15.56
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