A High Price-To-Book Ratio May Indicate Which One of the Following

question 40

Multiple Choice

A high price-to-book ratio may indicate which one of the following?

• A)The firm expanded its plant and equipment in the past few years.
• B)The firm is doing a better job controlling its inventory expense than other related firms.
• C)Investors may believe that this firm has opportunities of earnings a rate of return in excess of the market capitalisation rate.
• D)The firm's P/E ratio is too high.

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Definitions:

Nominal Exchange Rate

The rate at which one currency can be exchanged for another currency, not adjusted for inflation.

Real Exchange Rate

The rate at which two currencies can be exchanged after adjusting for inflation differences.

Purchasing-Power Parity

An economic theory stating that in the absence of transaction costs and with efficient markets, equivalent goods should have the same price when converted into a common currency.

Purchasing-Power Parity

A theory which posits that currencies are in equilibrium in terms of exchange rates when the purchasing power in both countries is identical.