Gershwin Company reported net income of $428,000 and paid $8,500 in preferred cash dividends during the current year. The company had 110,000 common shares issued, and 10,000 common shares in treasury during the year. The year-end market price per common share was $41.05. Calculate the company's price-earnings ratio.
What will be an ideal response?
Price-Earnings Ratio = Market Price per Share/ (Net Income/Weighted-Average Common Shares Outstanding)
Price-Earnings Ratio = $41.05/ [($428,000 - $8,500)/ (110,000 shares - 10,000 shares)] = 9.8
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