Using the P/E ratio
During 2011 Carabella, Inc., and Yambill, Inc., reported net incomes of $120,000 and $140,000, respectively. Both companies had 50,000 shares of common stock issued and outstanding. The market price per share of Carabella's stock was $36, while Yamhill's sold for $31 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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