The Following Amounts Were Taken from the Financial Statements of Leaf

question 29

Multiple Choice

The following amounts were taken from the financial statements of Leaf Company: $\begin{array}{lrr}&2020&2019\\\text { Total assets } & \$ 800,000 & \$ 1,000,000 \\\text { Net sales } & 720,000 & 650,000 \\\text { Gross profit } & 352,000 & 320,000 \\\text { Net income } & 150,000 & 117,000 \\\text { Weighted average number of common shares outstanding } & 50,000 & 90,000 \\\text { Market price of common stock } & \$ 64,50 & \$ 39\end{array}$ The price-earnings ratio for 2020 is

• A) 21.5 times.
• B) 36 times.
• C) 4.5 times.
• D) 3.0 times.

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Definitions:

Compounded

In finance, it refers to the process where interest is calculated on the initial principal and also on the accumulated interest of previous periods.

Actual Annual

Refers to the true or realistic yearly financial or quantitative performance or output of an entity or activity.

Interest Rate

The cost of borrowing money or the return for investing money, usually expressed as a percentage of the principal amount per year.

Economic Rent

The portion of income earned from a factor of production (land, labor, or capital) that exceeds the minimum amount necessary for it to be utilized in its current use.