A Company Whose Stock Is Selling at a P/E Ratio

question 24

Multiple Choice

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _________.

• A)an anticipated earnings growth rate which is less than that of the average firm
• B)a dividend yield which is less than that of the average firm
• C)less predictable earnings growth than that of the average firm
• D)greater cyclicality of earnings growth than that of the average firm
• E)none of the above.

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Definitions:

Production Process

is the series of steps or operations involved in the manufacture of goods or services.

Short-Run Adjustments

Refers to the changes firms make in response to changing market conditions in the short term when at least one production factor is fixed.

Oligopolists

Firms that are part of an oligopoly, a market structure with a small number of firms dominating the market, leading to limited competition.

Inverted-U Theory

A theoretical concept suggesting that a variable's effect on a particular outcome increases to a point but then begins to decrease as the variable continues to increase.