Assuming All of the Following Firms Have a Required Return

question 60

Multiple Choice

Assuming all of the following firms have a required return of 14 percent, which would you expect to have a positive present value of growth opportunities?

• A)A firm with a P/E ratio of 9
• B)A firm with a P/E ratio of 6
• C)A firm with an E/P ratio of 20 percent
• D)None of the above firms are expected to have positive PVGO Required return > E/P ratio if PVGO > 0

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Definitions:

Surplus

An excess of something, often used in economic contexts to describe a situation in which supply exceeds demand.

Shortage

A situation where the demand for a product exceeds its supply at the current price, leading to a scarcity of the product in the market.

Supply Shift

A change in the quantity of a product or service that producers are willing and able to sell at all possible prices in the market.

Increase

A rise in quantity, value, or some other measure, indicating growth or gain in specifics.