Companies a and C Each Reported the Same Earnings Per

question 102

Multiple Choice

Companies A and C each reported the same earnings per share (EPS) , but Company A's stock trades at a higher price.Which of the following statements is CORRECT?

• A) Company A trades at a higher P/E ratio.
• B) Company A probably has fewer growth opportunities.
• C) Company A is probably judged by investors to be riskier.
• D) Company A must have a higher market-to-book ratio.
• E) Company A must pay a lower dividend.

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Definitions:

Substitutable Resources

Resources that can replace each other in production or consumption, leading to flexibility and alternatives for consumers and producers.

Rent

The payment made by a tenant to a landlord for the use of a property or space.

Substitution Effect

The economic principle that as prices rise or income decreases, consumers will replace more expensive items with less costly alternatives.

Output Effect

The Output Effect describes how changes in price levels affect the quantity of goods and services produced in an economy, influencing overall economic output.