Normative Economics Involves

question 45

Multiple Choice

Normative economics involves

• A) a statement of fact.
• B) a statement of "what should be."
• C) a statement of "what is."
• D) a statement that is purely descriptive.

Comprehend the factors influencing P/E ratios and their implications on stock performance.

Grasp the significance of Tobin's Q and its long-run implications.

Understand the Present Value of Growth Opportunities (PVGO) and its calculation.

Learn the effects of earnings management under GAAP on earnings reports and stock valuation.

---

Definitions:

Leverage

The use of borrowed capital for (an investment), expecting the profits made to be greater than the interest payable.

Activity

Any specific task, action, or series of actions undertaken, often carrying out a particular function or purpose.

Negative Cash Flow

A situation where a company's outflows of cash exceed its inflows over a given period, indicating potential financial trouble.

Cash Turnover Ratio

A financial metric that measures how efficiently a company generates sales from its cash on hand.