Which of the Following Statements Is False

question 47

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 patient 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:

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and labor.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance expenses.

Break Even

The point at which total costs and total revenues are equal, resulting in no net loss or gain.

Variable Costs

Costs that change in direct proportion to changes in levels of activity or production volume, such as materials and labor.