All of the Following Are Economic Factors That Can Cause

question 52

Multiple Choice

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

• A) when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital
• B) when the firm earns the same profitability but with lower risk and, therefore, a lower cost of equity capital
• C) a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE
• D) a firm's business model that results in slower growth in earnings and this creates negative residual ROCE

---

Definitions:

Manufacturing Costs

Expenses that are directly involved in the production of goods, including raw materials, labor, and overhead costs.

Period Costs

Expenses on an income statement that are not directly tied to the production of goods or services, such as sales, general, and administrative expenses.

Product Costs

Costs directly associated with the production of goods sold by a company, including materials, labor, and overhead.

Input Cost Changes

Variations in the cost of materials and services used in the production of goods or services over time.