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:

Depreciated

A reduction in the value of an asset over time, due in particular to wear and tear.

Interest Capitalization

The process of adding interest that has accumulated on a loan to the principal balance of the loan, effectively increasing the total amount owed.

Borrowed

Refers to funds or resources obtained through a loan or credit that must be repaid in the future, often with interest.