During 2016 the Lake Corporation and the River Corporation reported net incomes of $700,000 and $960,000, respectively.

Question:

During 2016 the Lake Corporation and the River Corporation reported net incomes of $700,000 and $960,000, respectively. Both companies had 200,000 shares of common stock issued and outstanding. The market price per share of Lake’s stock was $50, while River’s sold for $85 per share.

Required

a. Determine the P/E ratio for each company.

b. Based on the P/E ratios computed in Requirement a, which company do investors believe has the greater potential for growth in income?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...