Company a and Company B Have Identical Expected Earnings Potential

question 22

Multiple Choice

Company A and Company B have identical expected earnings potential but Company B has a higher price-earnings ratio.This discrepancy:

• A)can be explained by the difference in share price.
• B)can be explained by the fact that Company A pays more dividends.
• C)can be explained by the fact that Company A is considered to be riskier than Company
• D)cannot be explained.

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Definitions:

Injury

Physical harm or damage to someone's body caused by an accident or an act of violence.

Marginal Benefit

The supplementary value obtained from the consumption of an extra unit of a good or service.

Optimal Quantity

The ideal amount of a good or service that maximizes efficiency or utility, taking into account costs and benefits.

Marginal Curve

Refers to graphs like the marginal cost curve or marginal revenue curve, which show how the cost or revenue changes with an additional unit of output.