Which of the Following Statements Is CORRECT

question 13

Multiple Choice

Which of the following statements is CORRECT?

• A) If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.
• B) If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.
• C) Other things held constant, the higher a firm's expected future growth rate, the lower its P/E ratio is likely to be.
• D) The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA).
• E) If a firm has a history of high Economic Value Added (EVA) numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average.

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Definitions:

Cessation

The act of stopping or discontinuing a process, operation, or activity.

Control

The authority to guide and manage the operations, policies, or practices of an organization or process, often held by a management team or an executive role within a company.

Capacity

The maximum level of output that a company can sustain to produce goods or services under normal working conditions.

Operating Cash Flow

Cash generated from a firm’s normal business activities.