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 are correct.

Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated by dividing the market price per share by the earnings per share (EPS). EPS is calculated as (Net Income - Preferred Dividends) / Average Outstanding Common Shares. Here, EPS = ($112,000 - $12,000) / 20,000 = $5. The price-earnings ratio is $95 / $5 = 19.

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