Which of the Following Statements Is Most Correct

question 27

Multiple Choice

Which of the following statements is most correct?

• A)If two companies have the same ROE and the same risk, they must have the same residual income (abnormal earnings) for the year.
• B)If two companies have the same net book value and the same residual income this year, then their stock prices must be the same.
• C)If two companies have the same ROE and the same stock price, their earnings must be the same for the year.
• D)If two companies have the same ROE, net book value, and cost of capital, then their residual income must be the same for the year.

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Definitions:

Standard Error

A measure of the statistical accuracy of an estimate, indicating the variability of sample means around the population mean.

Mean

A statistical measure representing the central or typical value in a set of data, calculated as the sum divided by the number of observations.

Directional

Pertains to hypotheses or tests that specify the expected direction of the relationship or difference between variables, as opposed to non-directional or two-tailed tests.

Non-directional

A hypothesis that does not specify a direction of difference or association between two variables.