Question

Preferred stock outstanding, 1% 200 800 Net income Average number of shares of common stock outstanding 300

Answer 1

1)

Preferred dividend = $200*1% = 2

EPS = (Net income-Preferred dividends)/Average number of common shares outstanding

EPS = (800-2)/300

EPS = 798/300

EPS = $2.66

P/E Ratio = market price per share/Earnings per share

P/E Ratio = $35.91/2.66

P/E Ratio = 13.50 times

2. The stock market says that $1 of Fine cars net income is worth = $13.50

Price earnings ratio of 13.50 indicates that to earn $1, Investment needed is $13.50

Hope this helped ! Let me know in case of any queries.