The P/E Ratio for BMI Corporation Is 21,and the P/S

question 45

Multiple Choice

The P/E ratio for BMI Corporation is 21,and the P/S ratio is 5.2.The industry P/E ratio is 35 and the industry P/S ratio is 7.5.Based on relative valuation,BMI is

• A) undervalued on the basis of relative P/E and relative P/S.
• B) overvalued on the basis of relative P/E and undervalued on the basis of relative P/S.
• C) undervalued on the basis of relative P/E and overvalued on the basis of relative P/S.
• D) overvalued on the basis of relative P/E and relative P/S.
• E) none of the above.

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Definitions:

Gain on Disposal

The profit realized from the sale of an asset for more than its book value.

Cost of Goods Sold

The total cost associated with making or acquiring any goods sold during a reporting period.

Natural Resources

Assets that consist of standing timber and underground deposits of oil, gas, and minerals.

Act of Nature

Natural events outside of human control, such as earthquakes, floods, or hurricanes, that can cause damage or affect contracts and liabilities.