A Company Is Expected to Generate $175,000 in Earnings Next

question 24

Multiple Choice

A company is expected to generate $175,000 in earnings next period and requires a 20% return on equity capital.Using the assumptions of the price-earnings ratio,what would be the company's value at the beginning of next period?

• A) $781,250
• B) $1,250,000
• C) $2,000,000
• D) $875,000

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Definitions:

Paid-In Capital

Section of stockholders’ equity representing what stockholders have invested into the corporation.

Retained Earnings

Retained earnings represent the cumulative amount of net income retained in the company rather than distributed to shareholders as dividends.

Dividends Payable

A financial accounting term referring to the declared dividends to be paid to a corporation's shareholders out of current or retained earnings.