Question

Which of the following is true about the P/E ratio of a firm?​ a. ​If a...

Which of the following is true about the P/E ratio of a firm?​

a.

​If a firm's P/E ratio is 8, then, it would take 8 years for an investor to double his or her initial investment.

b.

​If a company's P/E ratio is too high relative to that of similar firms, its earnings have not been fully captured in the existing stock value.

c.

​The higher the P/E ratio, the less investors are willing to pay for each dollar earned by the firm.

d.

​The appropriate value of P/E ratio is multiplied with EPS to estimate the stock price.

e.

​If the firm's P/E ratio is too low relative to that of similar firms, it means that the market has overvalued its current earnings

Which of the following is included in the call provision of a preferred stock?​

a.

​Preferred stock can participate with the common stock in sharing the firm's earnings.

b.

​Preferred stockholders have priority over common stockholders with regard to assets of the firm.

c.

Preferred stockholders can elect the members of the board of directors and also vote on corporate issues.​

d.

​Preferred stockholders have the right to receive preferred dividends previously not paid, to be disbursed before any common stock dividends can be paid.

e.

​Preferred stock can be redeemed by incorporating a maturity option to a preferred stock issue.

Which of the following is determined by decreasing a firm's after-tax operating income by the costs associated with both the debt and the equity issued by the firm?

a.

A firm's economic value added

b.

A firm's intrinsic value of stock

c.

A firm's expected capital gains yield

d.

A firm's price earnings ratio

e.

A firm's nonconstant growth of stock

Homework Answers

Answer #1

1)

P/E ratio = Market price per share/earnings per share                    ...... (1)

EPS = income available to common stockholder’s/Number of common stocks.

From formula (1) we can say that. If we multiply P/E ratio with EPS we will get market price per share.

Hence, correct option is “(d) The appropriate value of P/E ratio is multiplied with EPS to estimate the stock price.”

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
25.       Which of the following is true regarding the price/earnings ratio?             A)        A high P/E ratio is
25.       Which of the following is true regarding the price/earnings ratio?             A)        A high P/E ratio is often taken to mean the firm has poor prospects for future growth.             B)        A P/E ratio of 15 means investors are willing to pay $1 for each $15 of past earnings.             C)        Low P/E ratios can only result from a firm having very low earnings.             D)        If a firm has high earnings per share, then it will have a very high P/E ratio. E) NONE OF THE ABOVE...
The Vinson Corporation has earnings of $1,106,000 with 370,000 shares outstanding. Its P/E ratio is 12....
The Vinson Corporation has earnings of $1,106,000 with 370,000 shares outstanding. Its P/E ratio is 12. The firm is holding $410,000 of funds to invest or pay out in dividends. If the funds are retained, the aftertax return on investment will be 10 percent, and this will add to present earnings. The 10 percent is the normal return anticipated for the corporation, and the P/E ratio would remain unchanged. If the funds are paid out in the form of dividends,...
EPS, P/E Ratio, and Dividend Ratios The Stockholders' Equity section of the balance sheet for Obregon,...
EPS, P/E Ratio, and Dividend Ratios The Stockholders' Equity section of the balance sheet for Obregon, Inc. at the end of 2017 appears as follows: 8%, $100 par, cumulative preferred stock, 200,000 shares authorized, 50,000 shares issued and outstanding $5,000,000 Additional paid-in capital on preferred 2,500,000 Common stock, $5 par, 500,000 shares authorized, 400,000 shares issued and outstanding 2,000,000 Additional paid-in capital on common 18,000,000 Retained earnings 37,500,000 Total stockholders' equity $65,000,000 Net income for the year was $1,240,000. Dividends...
1. Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial...
1. Earnings per Share, Price-Earnings Ratio, Dividend Yield The following information was taken from the financial statements of Tolbert Inc. for December 31 of the current fiscal year: Common stock, $45 par value (no change during the year) $8,100,000 Preferred $5 stock, $100 par (no change during the year) 2,000,000 The net income was $424,000 and the declared dividends on the common stock were $45,000 for the current year. The market price of the common stock is $14.40 per share....
Which of the following statements is FALSE? A. The most common valuation multiple is the price-earnings...
Which of the following statements is FALSE? A. The most common valuation multiple is the price-earnings (P/E) ratio. B. You should be willing to pay proportionally more for a stock with lower current earnings. C. A firm's P/E ratio is equal to the share price divided by its earnings per share. D. The intuition behind the use of the P/E ratio is that when you buy a stock, you are in sense buying the rights to the firm's future earnings...
Using the ​P/E ratio approach to​ valuation, calculate the value of a share of stock under...
Using the ​P/E ratio approach to​ valuation, calculate the value of a share of stock under the following​ conditions: • the​ investor's required rate of return is 14 ​percent, • the expected level of earnings at the end of this year ​(E1​) is ​$5​, • the firm follows a policy of retaining 20 percent of its​ earnings, • the return on equity ​(ROE​) is 15 ​percent, and • similar shares of stock sell at multiples of 7.272 times earnings per...
Financial Learning Systems has 2.34 million shares of common stock outstanding and 126,779 shares of preferred...
Financial Learning Systems has 2.34 million shares of common stock outstanding and 126,779 shares of preferred stock. ? (The preferred pays annual cash dividends of ?$5.24 a? share, and the common pays annual cash dividends of 21 cents a? share.) Last? year, the company generated net profit? (after taxes) of $6,869,423.??The? company's balance sheet shows total assets of ?$71 ?million, total liabilities of??$26 ?million, and $5 million in preferred stock. The? firm's common stock is currently trading in the market...
Financial Learning Systems has 2.9 million shares of common stock outstanding and 61,410 shares of preferred...
Financial Learning Systems has 2.9 million shares of common stock outstanding and 61,410 shares of preferred stock.​ (The preferred pays annual cash dividends of ​$4.46 a​ share, and the common pays annual cash dividends of 19 cents a​ share.) Last​ year, the company generated net profit​ (after taxes) of $5,809,735. The​ company's balance sheet shows total assets of ​$72 ​million, total liabilities of $26 ​million, and $5 million in preferred stock. The​ firm's common stock is currently trading in the...
using the P/E ratio approach to evaluation calculate the value of a share of stock under...
using the P/E ratio approach to evaluation calculate the value of a share of stock under the following Conditions: The investors required rate of return is 15% , The expected level of earnings at the end of this year ( E1 ) is $8.00 · The firm follows a policy of retaining 30% of its earnings · The return on equity ( ROE )is 20% and · Similar shares of stock sell at multiples of 7.7778 times earnings per share....
1. Which of the following statements is not true? Preferred dividends are tax deductible, therefore, preferred...
1. Which of the following statements is not true? Preferred dividends are tax deductible, therefore, preferred stock is similar to debt Preferred stockholders receive dividends at a pre-specified rate. Dividends in arrears and the current period’s preferred dividend must be paid before common shareholders can receive a dividend if the preferred stock is cumulative. Preferred stock is unlike debt because preferred stockholders receive dividends in a given year only if they are declared. 2. Toledo Corporation reacquired 2,500 shares of...