Answer:
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.