Which of the Following Statements Is CORRECT

question 91

Multiple Choice

Which of the following statements is CORRECT?

• A) If Firms X and Y have the same P/E ratios, then their market-to- book ratios must also be the same.
• B) If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also
• Be the same.
• C) If Firms X and Y have the same earnings per share and market-to-
• Book ratio, they must have the same price earnings ratio.
• D) If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to
• Be less risky and also to be expected to grow at a faster rate.
• E) If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their market-to-book ratios must also be the same.

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Definitions:

Deferred Income Taxes

The accounting concept that recognizes the tax effect of transactions in different periods than when the transactions actually occur.

Effective Tax Rate

The average rate at which an individual or corporation is taxed, calculated by dividing the total tax paid by the taxable income.

Bond Premium

The amount by which the market price of a bond exceeds its face value.

Goodwill Impairment

A decrease in the value of goodwill, which occurs when the carrying amount of a company's goodwill exceeds its fair value.