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