Final answer:
The Crestar Company's current price-earnings ratio is 180,000.
Step-by-step explanation:
The price-earnings ratio (P/E ratio) is a financial metric used to assess the relative value of a company's stock. It is calculated by dividing the current market price per share by the earnings per share (EPS). In this case, we can calculate the EPS by subtracting the preferred dividends from the net income and dividing by the average outstanding common shares.
Net income - Preferred dividends = $112,000 - $12,000 = $100,000
Earnings per share = Net income / Average outstanding common shares = $100,000 / 20,000 = $5
To calculate the price-earnings ratio, we divide the market price per share by the earnings per share. The market price per share can be calculated by multiplying the number of common shares by the market price per share for both preferred and common shares, and then subtracting the value of preferred shares from the total value.
Market price per share = (Number of common shares * Price per share of common shares) - (Number of preferred shares * Price per share of preferred shares)
Market price per share = (20,000 * $95) - (20,000 * $50) = $1,900,000 - $1,000,000 = $900,000
Price-earnings ratio = Market price per share / Earnings per share = $900,000 / $5 = 180,000