Which One of the Following Statements Is True Concerning the Price-Earnings

question 30

Multiple Choice

Which one of the following statements is true concerning the price-earnings (PE) ratio?

• A)A high PE ratio may indicate that a firm is expected to grow significantly.
• B)A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings.
• C)PE ratios are unaffected by the accounting methods employed by a firm.
• D)The PE ratio is classified as a profitability ratio.
• E)The PE ratio is a constant value for each firm.

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Definitions:

Freedom of Enterprise

The freedom for individuals to start and operate private businesses in search of profits with minimal government intervention.

Competition

The economic rivalry between companies or individuals for a larger share of a market, leading to better quality products and services at lower prices.

Competition

The rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix.

Independently Acting Buyers

are consumers who make purchasing decisions based on their own preferences and circumstances, without coordinating with others.