Laura Is Considering Two Investments: Stock a and B

question 44

Multiple Choice

Laura is considering two investments: Stock A and B.Both stocks have a P/E ratio of 19.Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent.Which is the better stock and why?

• A) Stock B is better because it is considered to be cheaper than Stock A.
• B) Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B.
• C) Since the P/E ratios are the same, Laura would be indifferent between the two stocks.
• D) None of the statements are correct.

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Definitions:

Deferred Debit

An expenditure recorded on a balance sheet that is expected to be recovered over time through future benefits or income.

Interim Balance Sheet

A financial statement showing the financial position of a company at a certain point in time, often prepared for a period shorter than a fiscal year.

Work in Process

An inventory account that represents goods that are in various stages of production but are not yet completed.

Materials Requisition

A document or electronic form used to request the transfer of materials from inventory for production or other internal use.