A Firm Has a Market to Book Value Ratio That

question 28

Multiple Choice

A firm has a market to book value ratio that is equivalent to the industry average and an ROE that is less than the industry average, which implies

• A) the firm has a higher P/E ratio than other firms in the industry.
• B) the firm is more likely to avoid insolvency in the short run than other firms in the industry.
• C) the firm is more profitable than other firms in the industry.
• D) the firm is utilizing its assets more efficiently than other firms in the industry.

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Definitions:

Debt-to-Assets Ratio

A financial ratio indicating the percentage of a company's assets that are financed through debt.

Flotation Costs

Expenses incurred by a company when it issues new securities, including fees for underwriting, legal counsel, and registration.

After-Tax Cash Inflows

The amount of cash generated from operations or investments after accounting for taxes, crucial for evaluating financial performance.

Debt-Equity Ratio

A ratio detailing the comparative use of borrowed funds and equity by a company to finance its assets.