Another Manager at AB Distributor,Shawna,suggests That If the Company's Revenue

question 55

Multiple Choice

Another manager at AB Distributor,Shawna,suggests that if the company's revenue had not increased,it would not have been able to increase its profits.Which of the following points out a flaw in Shawna's reasoning?

• A) Other similar companies have increased their profits, too.
• B) Revenue is not always relevant to figuring profitability.
• C) Profitability is not the only objective of the company.
• D) The company can increase revenue only by cutting costs.
• E) It is possible to increase profits by lowering costs.

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Definitions:

Constant-Growth DDM

A valuation method that estimates the value of a stock by using its expected dividends, which grow at a constant rate indefinitely.

Intrinsic Value

The actual, inherent value of an asset, without respect to market value or external factors.

Market Capitalization Rate

A rate that represents the return expected by investors on a security or a portfolio, typically reflective of the risk and growth prospects.

Earnings Retention Ratio

The earnings retention ratio, also known as the plowback ratio, measures the percentage of net earnings a company retains to reinvest in the business, as opposed to distributing to shareholders as dividends.