Question

29. RTR Corp. has reported a net income of $812,425 for the year. The company's share price is $13.45, and the company has 312,490 shares outstanding. Compute the firm's price-earnings ratio. Round your final answer to two decimal places.

A)4.87 times

B)8.12 times

C)5.17 times

D)None of the above

Answer 1

Option C is correct. 5.17 times

Calculation :

Price-earnings ratio = Share price/Earnings per share

Firstly, we will calculate earnings per share

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

EPS = ($812,425 - $0)/312,490

EPS = $2.60 per share

Price-earnings ratio = $13.45/$2.60

Price-earnings ratio = 5.17 times

Answer 2

To compute the firm's price-earnings ratio (P/E ratio), we divide the company's share price by its earnings per share (EPS). The earnings per share is calculated by dividing the net income by the number of shares outstanding.

P/E ratio = Share Price / Earnings per Share

Given: Net Income = $812,425 Share Price = $13.45 Shares Outstanding = 312,490

Earnings per Share (EPS) = Net Income / Shares Outstanding EPS = $812,425 / 312,490 EPS ≈ $2.60 (rounded to two decimal places)

Now, calculate the P/E ratio:

P/E ratio = $13.45 / $2.60 P/E ratio ≈ 5.17 (rounded to two decimal places)

The firm's price-earnings ratio is approximately 5.17 times (option C).