Use This Information for Kellman Company to Answer the Questions $\text { Kellman Company }$

question 1

Multiple Choice

Use this information for Kellman Company to answer the questions that follow.
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The balance sheets at the end of each of the first two years of operations indicate the following:
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$\text { Kellman Company }$
$\begin{array}{lrr}&\text { Year } 2&\text { Year } 1\\\text { Total current assets } & \$ 600,000 & \$ 560,000 \\\text { Total investments } & 60,000 & 40,000 \\\text { Total property, plant, and equipment } & 900,000 & 700,000 \\\text { Total current liabilities } & 125,000 & 65,000 \\\text { Total long-term liabilities } & 350,000 & 250,000 \\\text { Preferred } 9 \% \text { stock, } \$ 100 \text { par } & 100,000 & 100,000 \\\text { Common stock, } \$ 10 \text { par } & 600,000 & 600,000 \\\text { Paid-in capital in excess of par-Common stock } & 75,000 & 75,000 \\\text { Retained earnings } & 310,000 & 210,000\end{array}$
-Using the balance sheets for Kellman Company, if net income is $250,000 and interest expense is $20,000 for Year 2, and the market price of common shares is $30, what is the price-earnings ratio on common stock for Year 2? (Round intermediate calculation to two decimal places and final answers to one decimal place.)

• A) 7.5
• B) 13.4
• C) 12.1
• D) 8.5

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Definitions:

Nondiscriminating Monopolist

A monopoly that charges all consumers the same price for its product, rather than setting different prices for different consumers or groups.

Total Costs

The sum of all costs incurred in the production of goods or provision of services, including both fixed and variable costs.

Profit-Maximizing Price

The price level at which a company can sell its products or services to achieve the highest profit, considering the cost of production and market demand.

Pure Monopolist

A market structure where a single firm is the sole producer of a product or service, having significant control over its price.