The Crestar Company Reported Net Income of $64,600 on 14,000

question 1

Multiple Choice

The Crestar Company reported net income of $64,600 on 14,000 average outstanding common shares. Preferred dividends total $11,400. On the most recent trading day, the preferred shares sold at $44 and the common shares sold at $74. What is this company's current price-earnings ratio? (Do not round your intermediate calculations.)

• A) 16.04
• B) 19.47
• C) 21.67
• D) None of these answers are correct.

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Definitions:

Miller Model

A theory on capital structure that extends the Modigliani-Miller theorem by including corporate taxes but excluding bankruptcy costs.

Leverage Gain

The increase in potential returns to an investor achieved by using borrowed funds or financial derivatives.

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements; it represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership.

Capital Structure

The composition of a company’s debt and equity used to finance its overall operations and growth.