CORRECT ANSWER B. APPLESEED’S PRICE/EARNINGS RATION IS 9.09 AS S...

77.

Correct answer b. Appleseed’s price/earnings ration is 9.09 as shown below.

Earnings per share

= (Net income – Preferred dividends) ÷ Common shares outstanding

= [$588,000 – ($6 x 10,000)] ÷ 120,000

= $528,000 ÷ 120,000

= $4.40

Price/earnings ratio

= Market price per share ÷ Earnings per share

= $40 ÷ $4.40

= 9.09