ABC Corporation and DEF Corporation Operate in the Same Industry

question 37

Multiple Choice

ABC Corporation and DEF Corporation operate in the same industry. ABC has a PE ratio that is 50% higher than DEF Corporation. Which of the following accounts for some of the difference in the observed PE ratios?

I. ABC uses more conservative accounting principles.
II. ABC has a higher cost of equity capital.
III. ABC has higher expected future growth.
IV. DEF uses FIFO and ABC uses LIFO.

• A)I, II, III, and IV
• B)I, III, and IV
• C)I and III
• D)II, III, and IV

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Definitions:

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An official meeting or session held by a congressional committee to investigate, review, or discuss a matter of public concern or legislative policy.