The First Step in Calculating the Price/earnings Ratio Is

question 74

Multiple Choice

The first step in calculating the price/earnings ratio is

• A) calculate number of preferred shares.
• B) calculate number of common shares.
• C) calculate balance in the retained earnings account.
• D) calculate earnings per share.

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Definitions:

Internal Rate

Often referenced in the context of the internal rate of return (IRR), it is a metric used in capital budgeting to estimate the profitability of potential investments.

Investment Project

An undertaking requiring capital investments with the goal of generating future returns or benefits.

Salvage Value

The estimated residual value of an asset at the end of its useful life.

Capital Budgeting

The process of planning significant investments in projects that have long-term implications such as the purchase of new equipment or the introduction of a new product.