During 2014 the Channel Corporation and the Dock Corporation reported net incomes of $90,000 and $130,000, respectively. Both companies had 25,000 shares of common stock issued and outstanding. The market price per share of Channel's stock was $47, while Dock's sold for $52 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?