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The income statement, statement of retained earnings, and balance sheet for Somerville Company are as follows: * Includes both state and federal taxes. Refer to the information for Somerville Company on the previous pages. Also, assume that the price per common share for Somerville is $8.10. Required: Compute the price-earnings ratio. ( Note: Round the answer to two decimal places.)

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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773
Chapter 15, Problem 22BEA
Textbook Problem
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The income statement, statement of retained earnings, and balance sheet for Somerville Company are as follows:

Chapter 15, Problem 22BEA, The income statement, statement of retained earnings, and balance sheet for Somerville Company are , example  1

*Includes both state and federal taxes.

Chapter 15, Problem 22BEA, The income statement, statement of retained earnings, and balance sheet for Somerville Company are , example  2

Chapter 15, Problem 22BEA, The income statement, statement of retained earnings, and balance sheet for Somerville Company are , example  3

Refer to the information for Somerville Company on the previous pages. Also, assume that the price per common share for Somerville is $8.10.

Required:

Compute the price-earnings ratio. (Note: Round the answer to two decimal places.)

To determine

Calculate the price-earnings ratio.

Explanation of Solution

Price Earnings Ratio:

Price earnings ratio is a metric that compares the current market price of the shares to the earnings generated per share. It is calculated by dividing the market price per share by earnings per share.

Use the following formula to calculate the price-earnings ratio:

Price-Earnings Ratio=Market Price Per ShareEarnings per Share1

Substitute $8.10 for market price per share and $3.71 for earnings per share in the above formula.

Price-Earnings Ratio=$8.10$3.71=2.18

Therefore, the value of price-earnings ratio is 2

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Chapter 15 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making
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