Which of the Following Statements Is FALSE

question 29

Multiple Choice

Which of the following statements is FALSE?

• A) We can estimate the value of a firm's shares by multiplying its current earnings per share by the average price-earnings ratio of comparable firms.
• B) For valuation purposes, the trailing price-earnings ratio is generally preferred, since it is based on actual not expected earnings.
• C) Forward earnings are the expected earnings over the coming 12 months.
• D) Trailing earnings are the earnings over the previous 12 months.

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Definitions:

After-Tax Discount Rate

The discount rate used in capital budgeting that accounts for the effects of taxes on the net present value of a project or investment.

Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity available for day-to-day operations.

Income Tax Rate

The rate determining the tax payment on the income for individuals and corporations.

Salvage Value

The estimated residual value of an asset after it has reached the end of its useful life.