The Following Data Was Collected for Arch Coal, Inc

question 37

Multiple Choice

The following data was collected for Arch Coal, Inc. in early 2008: Calculate Arch Coal's levered and unlevered P/E ratios. Round your answers to the nearest tenth.

• A)levered P/E = 10.3; unlevered P/E = 5.3
• B)levered P/E = 25.7; unlevered P/E = 11.3
• C)levered P/E = 25.7; unlevered P/E = 8.9
• D)levered P/E = 5.3; unlevered P/E = 10.3

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Definitions:

Equity Method

An accounting technique used to record investments in other companies, where the investment is significant but does not result in full control or majority ownership, typically 20% to 50% of the investee's voting stock.

Cost Method

An accounting method used to value an investment at its original purchase cost, adjusted for dividends, stock splits, and stock dividends.

Intercompany Interest Revenues

Income earned by one entity within a corporate group for lending funds to another entity within the same group, typically eliminated during the consolidation process for financial reporting.

Interest Expense

The cost incurred by an entity for borrowed funds, including loans, bonds, or lines of credit.