Which of the Following Statements Is Most Correct

question 25

Multiple Choice

Which of the following statements is most correct?

• A)Current cash flows are usually better proxies for future cash flows than a firm's earnings are, so the Price/Cash Flow ratio is typically a more reliable predictor of price than the
• Price/Earnings ratio.
• B)Current cash flows are typically reliable predictors of future earnings, so the P/E ratio is often calculated using cash flows rather than earnings.
• C)Current earnings and current cash flows are generally close enough in amount that the Price/Cash Flow ratio and the Price/Earnings ratio will be very similar.
• D)Current earnings are often better representatives of future cash flows than are current cash flows, so the Price/Earnings ratio is often a better predictor of price than the Price/Cash
• Flow ratio.

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Definitions:

Mortgage Insurance

An insurance policy designed to protect the lender from the risk of the borrower defaulting on a mortgage.

Mortgage Loan

A loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty.

Down Payment

An initial, upfront payment made towards the purchase of a high-value item, like real estate or a vehicle, typically representing a percentage of the total purchase price.

Statute of Frauds

A legal principle that requires certain types of contracts to be written in order to be enforceable.