The Common Stock of Securetech Corporation Consistently Sells at a Market

question 21

Multiple Choice

The common stock of Securetech Corporation consistently sells at a market price of 20 times earnings .What would be the most likely effect of a 10 cent increase in Securetech's basic EPS?

• A)An increase in market price of approximately 10 cents per share.
• B)An increase in market price of approximately $2 per share.
• C)A reduction in the p/e ratio due to the larger EPS.
• D)Nothing,since market price reflects expectations of future earnings.

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