Question

A high price-to-book ratio may indicate which one of the following?

All of these options.

The firm expanded its plant and equipment in the past few years.

The firm is doing a poorer job controlling its inventory expense than other related firms.

Investors may believe that this firm has opportunities for earning a rate of return in excess of the market capitalization rate.

Answer 1

Hello Sir/ Mam

YOUR REQUIRED ANSWER IS OPTION C :

Investors may believe that this firm has opportunities for earning a rate of return in excess of the market capitalization rate.

A high price to book ratio indicates that the investors may bellieve that this firm has opportunities for earning a rate of return in excess of market capitalization rate.

As investors believe so, they believe that they can earn a better rate of return due to opportunities and hence increasing the demand f the stock and hence price and thus increasing price-to-book ratio.

I hope this solves your doubt.

Do give a thumbs up if you find this helpful.