Davis, Inc. and Royal, Inc. reported net incomes of $81,000 and $93,000, respectively, for their most recent fiscal years. Both companies had 10,000 shares of common stock issued and outstanding. The market price per share of Davis’s stock was $130, while Royal’s sold for $120 per share.

Required

a. Determine the P/E ratio for each company. (Round to the nearest whole number.)

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