Which of the Following Statements Is False

question 35

Multiple Choice

Which of the following statements is false?

• A) The fact that a firm has an exceptional management team, has developed an efficient manufacturing process, or has just secured a patent on a new technology is ignored when we apply a valuation multiple.
• B) Valuation multiples have the advantage that they allow us to incorporate specific information about the firm's cost of capital or future growth.
• C) For firms with substantial tangible assets, the ratio of price to book value of equity per share is sometimes used.
• D) Using multiples will not help us determine if an entire industry is overvalued.

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Definitions:

Dividends

Payments made to shareholders out of a company's profits, usually on a quarterly basis, representing a portion of the company’s earnings distributed to its stockholders.

Cash

Cash refers to money in the physical form of currency, such as banknotes and coins, which represents immediate value for transactions or reserves.

Stock

Financial instruments representing ownership in a company and a claim on a portion of its assets and earnings.

Accumulated Earnings

The total net income of a company retained within the business after dividends are paid, without distribution to shareholders.