A company reported net income of $6 million. During the year the average number of common shares outstanding was 3 million. The price of a share of common stock at the end of the year was $5. There were 400,000 shares of preferred stock outstanding on average and no dividends were declared and the preferred stock is noncumulative.

1A.Use the information above to answer the following question. The EPS is approximately:

$0.40.

$1.76.

$1.86.

$2.00.

1b. Use the information above to answer the following question. The Price/Earnings ratio is approximately:

2.00.

2.50.

2.84.

12.50.