All of the Following Are Economic Factors That Can Cause

question 52

Multiple Choice

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

• A) when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital
• B) when the firm earns the same profitability but with lower risk and, therefore, a lower cost of equity capital
• C) a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE
• D) a firm's business model that results in slower growth in earnings and this creates negative residual ROCE

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Definitions:

Wage Level

The average rate of pay for workers or employees within a specific area or sector.

Labor Demand

The total amount of workers that employers are willing and able to hire at a given wage rate.

Full Employment

A situation in an economy where all available labor resources are being used in the most efficient way possible, typically characterized by the absence of cyclical unemployment.

Combined Value

The total worth generated by merging two or more elements, products, or processes, which is often greater than the sum of their separate values.