Which of the Following Statements Is FALSE

question 15

Multiple Choice

Which of the following statements is FALSE?

• A) The most common valuation multiple is the price-earnings ratio.
• B) You should be willing to pay proportionally more for a stock with lower current earnings.
• C) A firm's price-earnings ratio is equal to the share price divided by its earnings per share.
• D) The intuition behind the use of the price-earnings ratio is that when you buy a stock, you are in a sense buying the rights to the firm's future earnings, and differences in the scale of firms' earnings are likely to persist.

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Definitions:

Monopoly Profits

Monopoly profits refer to the extra earnings a firm accrues by being the sole supplier of a good or service with no close substitutes, allowing it to dictate market prices.

Industry

A group of manufacturers or businesses that produce a particular kind of goods or services.

Barriers to Entry

Factors that prevent or hinder companies from entering a particular market or industry.

Gas Station

A commercial outlet that offers gasoline and motor oil for automobiles.