Firms with Higher Expected Growth Rates Tend to Have P/E

question 92

Multiple Choice

Firms with higher expected growth rates tend to have P/E ratios that are ________ the P/E ratios of firms with lower expected growth rates.

• A) higher than
• B) equal to
• C) lower than
• D) There is not necessarily any linkage between risk and P/E ratios.

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Definitions:

Operating Assets

Assets used by a business in its daily operations to generate revenue, excluding investment and non-operational assets.

ROI

Return on Investment, a performance measure used to evaluate the efficiency of an investment or compare the efficiency of different investments.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes to covering fixed costs and generating profit.

Operating Data

Operating data consists of the information related to the day-to-day operations of a company, helping in the management and optimization of its business processes.