All of the Following Are Economic Factors That Can Cause

question 52

Multiple Choice

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

• A) when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital
• B) when the firm earns the same profitability but with lower risk and, therefore, a lower cost of equity capital
• C) a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE
• D) a firm's business model that results in slower growth in earnings and this creates negative residual ROCE

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Definitions:

Income Effect

The change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.

Inferior Good

A good, such as used clothes, for which demand decreases, or shifts leftward, as consumer income rises.

Potatoes

A starchy tuber vegetable grown and consumed worldwide, serving as a staple food in many cultures.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded by consumers.