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Boggs Company has 40,000 shares of common stock outstanding. The book value per share of this...

Boggs Company has 40,000 shares of common stock outstanding. The book value per share of this stock was $60.00 and the market value per share was $75.00 at the end of the year. Net income for the year was $400,000. Interest on long term debt was $40,000. Dividends paid to common stockholders were $3.00 per share. The tax rate was 30%. The company's price-earnings ratio at the end of the year was:


A. 25
B. 20
C. 7.50
D. 6.00

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Answer #1

Correct answer----(C) 7.50

A

Net income

$ 4,00,000.00

B

Number of shares in common stock

               40,000

C=A/B

Earnings per share

$              10.00

D

Market price of share at the year end

$              75.00

E=D/C

Price earning ratio at year end

                    7.50 times

Price earnings ratio= Price per share/Earnings per share

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