Assuming All of the Following Firms Have a Required Return

question 46

Multiple Choice

Assuming all of the following firms have a required return of 14%,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%.
• D) None of these firms are expected to have positive PVGO.

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Definitions:

Preparedness

The state of being readily equipped or mentally ready to handle situations or to undertake specific tasks.

Response Acquisition

The process through which new behaviors are learned or acquired, often discussed in the context of conditioning in psychology.

Diathesis-Stress Model

A psychological theory that explains behavior as a predispositional vulnerability together with stress from life experiences.

Operant Conditioning

A training approach in which behavior intensity is changed through rewards or discouragements.