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:

Cognitive Dissonance

The psychological discomfort experienced when holding two or more conflicting beliefs, values, or attitudes.

Scientific Process

A methodical approach to inquiry that involves the systematic observation, measurement, experimentation, formulation, testing, and modification of hypotheses.

Deduction

A logical process where a conclusion follows necessarily from the given premises; moving from general principles to specific instances.

Scope

The extent or range of view, reach, or application, often defining the boundaries of a project, study, or activity.