Which of the Following Statements Is FALSE

question 30

Multiple Choice

Which of the following statements is FALSE?

• A)You should be willing to pay proportionally more for a share with lower current earnings.
• B)The most common valuation multiple is the price-earnings ratio.
• 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 share, 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:

Non-Discounted Cash Flow

Cash flows that are not adjusted for the time value of money, representing raw incoming or outgoing cash streams.

Mutually Exclusive

Situations or events that cannot occur at the same time, implying a choice between alternatives.

IRR Rule

A decision-making tool used in finance to evaluate investments, stating that a project is acceptable if its internal rate of return exceeds the required rate of return.

NPV

A method used to evaluate the attractiveness of an investment project, assessing the value of all future cash flows against initial expenditure.