McDaniel Corporation had net income for 2016 of $75,000
McDaniel had 6,000 shares of common stock outstanding at the beginning of the year and 22,000 shares of common stock outstanding at the end of the year. There were 8,000 shares of preferred stock outstanding all year. During 2016, McDaniel declared and paid preferred dividends of $26,000. On December 31, 2106, the market price of McDaniel's common stock is $45 per share and the market price of its preferred stock is $73 per share. What is McDaniel's price/earnings ratio? (Round the answer to two decimal places.)
A) 12.86
B) 20.86
C) 13.20
D) 13.63
A .A) Average number of common shares outstanding: (22,000 + 6,000 ) / 2 = 14,000
Earnings Per Share = (Net income - Preferred dividends) / Average number of common shares outstanding
Earnings Per Share = ($75,000 - $26,000 ) / 14,000
Earnings Per Share = $3.50
Price/earnings ratio = Market price per share of common stock / Earnings per share
Price/earnings ratio = $45 / $3.50 = 12.86
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