Which of the Following Is a Problem That Exists When

question 18

Multiple Choice

Which of the following is a problem that exists when using the aggregate value of comparable firms and dividing by the aggregate earnings in order to determine a comparable P/E ratio?

• A)One firm with negative earnings can skew the results such that the P/E ratio is not meaningful.
• B)The P/E ratios of larger firms will have a greater effect on the average P/E than the P/E ratios of smaller firms.
• C)The P/E ratio should use only firms of similar size to the firm being valued, and this method uses the prices and the earnings of all the firms in the industry.
• D)The aggregate value of comparable firms is not a good substitute for prices.

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Definitions:

Infinite Recursion

A recursion without a base case, or that never reaches it, leading to a never-ending call stack and eventually a stack overflow error.

Base Case

A condition within recursion that stops the recursion by not making any further calls, preventing infinite recursion.

Recursive Call

A method call where the method being called is the same as the one making the call.

Factorial Method

A factorial method is a function that calculates the product of all positive integers less than or equal to a given number, expressing n! for a number n.