Which of the Following Would Tend to Reduce a Firm's

question 37

Multiple Choice

Which of the following would tend to reduce a firm's P/E ratio?

• A) The firm significantly decreases financial leverage
• B) The firm increases return on equity for the long term
• C) The level of inflation is expected to increase to double-digit levels
• D) The rate of return on Treasury bills decreases
• E) None of these

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Definitions:

Income Statement

A report showing the earnings, expenses, and net income of a business during a particular period, reflecting its financial performance.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return, used in discounting to assess investment value.

Semiannual Interest

Interest that is calculated and paid twice a year, often associated with bonds or loans.

Effective Rate

The actual interest rate that a borrower pays or earns, taking into account the compounding of interest.