During 2011 Carabella, Inc., and Yambill, Inc., reported net incomes of ($ 120,000) and ($ 140,000), respectively.
Question:
During 2011 Carabella, Inc., and Yambill, Inc., reported net incomes of \(\$ 120,000\) and \(\$ 140,000\), respectively. Both companies had 50,000 shares of common stock issued and outstanding. The market price per share of Carabella's stock was \(\$ 36\), while Yambill's sold for \(\$ 31\) per share.
Required
a. Determine the P/E ratio for each company.
b. Based on the P/E ratios computed in Requirement \(a\), which company do investors believe has the greater potential for growth in income?
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