A company with a net income of $2,800,000 has 400,000 weighted average common shares. The price-earnings ratio is 20.
What is the market value per share of this company's stock?
The company's net income is $2,800,000. There are 400,000 weighted average common shares. The price to earnings ratio is 20.
First, let's find the income per share or EPS. That is the total net income earned by the company divided by the total number of shares. Using the information given it can be calculated as 2,800,000/400,000 = $7.
The P/E or price to earnings ratio is 20. This gives the market value of a share of the company as 20 times the net income per share.
For a net income per share of $7, the market value is equal to 20*7 = $140.
The correct option for the market value of the stock of the company is option B.