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Richards Corporation had net income of $250,000 and paid dividends to common stockholders of $50,000. It had 50,000 shares of common stock outstanding during the entire year. Richards Corporation's common stock is selling for $35 per share. The price-earnings ratio is

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Answer:

Earnings per share = Net income/No of ordinary shares outstanding

Earnings per share = $250,000/50,000 share

Earnings per share = 5

Thus, Price-earnings ratio = Market price per share/Earnings per share

        Price-earnings ratio = $35/5

        Price-earnings ratio = 7

Explanation:

In this scenario, there is need to calculate earnings per share by dividing the net income by the number of common stock outstanding as shown above. Thereafter, we will now obtain the price-earnings ratio by dividing the market price per share by earnings per share.

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