Minden Co. has current assets of $180,000 (cash: $20,000, accounts receivable: $
ID: 2591276 • Letter: M
Question
Minden Co. has current assets of $180,000 (cash: $20,000, accounts receivable: $70,000, inventory: $90,000), and long-term assets that has cost $400,000, with accumulated depreciation to date of $180,000. Sales were $500,000, and operating profit was $50,000. Tax was $20,000 and interest paid was $10,000. A preferred dividend of $10,000 was paid to the common shareholders. There are 1,000 shares in issue, 500 shares as Treasury Stock, and the share price is $240 per share. The price to earnings ratio is:
Explanation / Answer
Answer :- Price earning Ratio = $12
Explanation :-
Calculation of price earnings ratio:-
The formula to calculate price earning ratio is :-
Price earning eatio:- Market Price Per Share ÷ Earnings per share
= $240/$20 = $12
Market price per share already give in the question as $240.
Calculation of Earnings per share:
EPS: Earnings after Interest and Tax ÷ Number of Shares
EPS = (Operating Profit - Interest - Tax) ÷ Number of Shares
EPS = ($50000-$20000-$10000)/1000 shares
EPS = $20 Per share