Last Year,Bennett's Had a PE Ratio of 5

question 86

Multiple Choice

Last year,Bennett's had a PE ratio of 5.4.This year,the PE ratio is 4.9.Based on this information,it can be stated with absolute certainty that

• A)the price per share increased.
• B)the earnings per share decreased.
• C)either the price per share,the earnings per share,or both,changed.
• D)investors are receiving a lower rate of return this year.
• E)investors are paying a lower price for each share of stock purchased.

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Definitions:

Variable Costing

An accounting method that only includes variable manufacturing costs (direct materials, direct labor, and variable manufacturing overhead) in product costs.

Fixed Overhead

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Selling Price

The amount of money charged for a product or service, or the sum of the value that customers exchange for the benefits of having or using the product or service.

Absorption Costing

An accounting method that includes all direct costs and allocated indirect costs (such as overhead) in the cost of a product.