A Company Is Expected to Generate $125,000 in Earnings Next

question 40

Multiple Choice

A company is expected to generate $125,000 in earnings next period and requires a 16 percent return on equity capital.Using the assumptions of the price-earnings ratio what would be the company's value at the beginning of next period?

• A) $781,250
• B) $1,250,000
• C) $2,000,000
• D) $125,000

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Definitions:

Common Stock

Represents ownership shares in a corporation, giving holders voting rights and a dividend potential.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, representing how much of an asset's value has been used up.

Tangible Asset

Physical assets that can be seen and touched, such as buildings, machinery, and inventory.

Earning Revenue

The process of generating income from the sale of goods or services over a specific period.