Computing the Price-Earnings Ratio

The income statement, statement of retained earnings, and balance sheet for Somerville Company are as follows:

Somerville Company Income Statement For the Year Ended December 31, 20X2 Amount Percent Net sales $8,281,989 100.0% Less: Cost of goods sold (5,383,293) 65.0 Gross margin $2,898,696 35.0 Less: Operating expenses (1,323,368) 16.0 Operating income $1,575,328 19.0 Less: Interest expense (50,000) 0.6 Income before taxes $1,525,328 18.4 Less: Income taxes (40%)* (610,131) 7.4 Net income $915,197 11.0 * Includes both state and federal taxes.

Somerville Company Statement of Retained Earnings For the Year Ended December 31, 20X2 Balance, beginning of period $1,979,155 Net income 915,197 Total $2,894,352 Preferred dividends (80,000) Dividends to common stockholders (201,887) Balance, end of period $2,612,465

Somerville Company Comparative Balance Sheets At December 31, 20X1 and 20X2 20X1 20X2 Assets Current assets: Cash $2,875,000 $2,580,000 Marketable securities 800,000 700,000 Accounts receivable (net) 939,776 690,000 Inventories 490,000 260,000 Other 93,000 74,261 Total current assets $5,197,776 $4,304,261 Property and equipment: Land $1,575,000 $1,067,315 Building and equipment (net) 1,348,800 1,150,000 Total long-term assets $2,923,800 $2,217,315 Total assets $8,121,576 $6,521,576 Liabilities and Stockholders' Equity Current liabilities: Notes payable, short term $1,170,127 $ 543,641 Accounts payable 298,484 101,500 Current maturity of long-term debt 3,000 2,000 Accrued payables 200,000 57,780 Total current liabilities $1,671,611 $ 704,921 Long-term liabilities: Bonds payable, 10% 500,000 500,000 Total liabilities $2,171,611 $1,204,921 Stockholders' equity: Preferred stock, $25 par, 8% $1,000,000 $1,000,000 Common stock, $1.50 par 337,500 337,500 Additional paid-in capital* 2,000,000 2,000,000 Retained earnings 2,612,465 1,979,155 Total stockholders' equity $5,949,965 $5,316,655 Total liabilities and stockholders' equity $8,121,576 $6,521,576 * For common stock only. Also, assume that the price per common share for Somerville is $8.10.

Required:

Compute the price-earnings ratio. Round your interim calculation and final answer to two decimal places.