Which of the Following Most Likely Explains Why a Corporation's

question 35

Multiple Choice

Which of the following most likely explains why a corporation's stock trades at a very high price-earnings ratio?

• A) Investors expect the corporation to have higher earnings in the future.
• B) The corporation pays a very low dividend on its stock.
• C) The corporation has several classes of stock outstanding.
• D) The corporation is large with very low risk.

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Definitions:

Shares Outstanding

The total number of shares of a company's stock that are currently owned by investors, including those held by the public as well as restricted shares owned by the company's insiders and employees.

Treasury Stock

Shares that were issued and subsequently reacquired by the issuing corporation, reducing the amount of outstanding stock on the open market.

Cash Dividend

The distribution of some of a company's earnings to its shareholders as determined by the company's board of directors.

Waste Management System

A systematic approach to handling both disposal and recycling of waste materials in an environmentally friendly manner.