The Crestar Company reported net income of $112,000 on 20,000 average outstanding common shares.Preferred dividends total $12,000.On the most recent trading day,the preferred shares sold at $50 and the common shares sold at $95.What is this company's current price-earnings ratio?
A) 19
B) 17
C) 20
D) None of these answers is correct.

Question

Quizplus · Accepted Answer

Earnings per share = (Net income =- Preferred stock dividends)÷ Average shares outstanding
Earnings per share = ($112,000 - $12,000)÷ 20,000 shares = $100,000 ÷ 20,000 shares = $5 per share
Price-earnings ratio = Market price per share ÷ Earnings per share
Price-earnings ratio = $95 per share ÷ $5 per share = 19

The Crestar Company Reported Net Income of $112,000 on 20,000