Using the P/E ratio
During 2012 the Brook Corporation and the River Corporation reported net incomes of $38,000 and $21,000, respectively. Both companies had 8,000 shares of common stock issued and outstanding. The market price per share of Brook's stock was $43, while River's sold for $32 per share.
Required
a. Determine the P/E ratio for each company.
b. Based on the P/E ratios computed in Requirement a, which company do investors believe has the greater potential for growth in income?
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