ABC Corporation and DEF Corporation Operate in the Same Industry

question 60

Multiple Choice

ABC Corporation and DEF Corporation operate in the same industry. ABC has a P/E ratio that is 50% higher than DEF Corporation. Which of the following account for some of the difference in the observed P/E ratios?
I. ABC uses more conservative accounting principles
II. ABC has a higher cost of equity capital
III. ABC has higher expected future growth
IV. DEF uses FIFO and ABC uses LIFO

• A) I, II, III and IV
• B) I, III and IV
• C) I and III
• D) II, III and IV

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Definitions:

Eastern Europe

A region comprising countries on the Eastern part of the European continent, often characterized by its history under Soviet influence during the Cold War.

Arsenal of Democracy

A phrase used by President Franklin D. Roosevelt in 1940 to describe the United States' role in providing military equipment and supplies to countries fighting against Axis powers in World War II.

Military Materiel

Equipment, apparatus, and supplies used by armed forces for warfare.

Bracero Program

A series of agreements between the United States and Mexico, allowing temporary laborers from Mexico to work in the U.S. agriculture field between 1942 and 1964.