Stilley Corporation had earnings after taxes of $438,000 in 20X2 with 200,000 shares outstanding. The stock price was $42.10. In 20X3, earnings after taxes declined to $208,000 with the same 200,000 shares outstanding. The stock price declined to $28.30. a. Compute earnings per share and the P/E ratio for 20X2. (Do not round intermediate calculations. Round your final answers to 2 decimal places.) b. Compute earnings per share and the P/E ratio for 20X3. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)\

a) Earnings Per Share for 20X2 = 2.19

P/E ratio for 20X2 = 19.22

b) Earnings Per Share for 20X3 = 1.04

P/E ratio for 20X3 = 27.21

Explanation:

a) Compute earnings per share and the P/E ratio for 20X2.

The compute the earnings per share use the following:

Earnings Per Share for 20X2 = (Earnings after tax-Preference Dividend) / shares outstanding

Earnings Per Share for 20X2 = 2.19

Then find P/E ratio:

P/E ratio for 20X2 = Market Price per share / Earnings Per Share

P/E ratio for 20X2 = 19.22

b) Compute earnings per share and the P/E ratio for 20X3.

The compute the earnings per share use the following:

Earnings Per Share for 20X3 =(Earnings after tax-Preference Dividend) / shares outstanding

Earnings Per Share for 20X3 = 1.04

Then find P/E ratio:

P/E ratio for 20X3 = Market Price per share / Earnings Per Share

P/E ratio for 20X3 = 27.21

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