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30 September, 06:49

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?

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  1. 30 September, 08:01
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    Price earnings ratio = 19 times.

    Explanation:

    Price earning ratio is calculated as for the common equity, as the earnings on preference share is fixed.

    Accordingly, the earnings for equity = Net income - preference dividend = $112,000 - $12,000 = $100,000

    Number of shares outstanding = 20,000

    Earnings per share = $100,000/20,000 = $5 per share.

    Selling price of the share = $95

    Thus, price earnings ratio = $95/$5 = 19 times.

    This reflects that the 19 times of earnings is the price of share.
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Home » Business » 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.
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