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:

Luster

The way a mineral reflects light from its surface, which can be metallic, glassy, dull, etc., and is used in mineral identification.

Color

The characteristic of visual perception described through hue, saturation, and brightness.

Hematite

An iron oxide mineral with a metallic luster and reddish-brown streak, commonly used as an ore of iron.

Magnetite

A magnetic mineral form of iron(II,III) oxide, often found in igneous and metamorphic rocks.