If a Company's P/E Is 20 and Its Industry's Mean

question 57

Multiple Choice

If a company's P/E is 20 and its industry's mean P/E is 15,the company is likely considered to be

• A)overvalued.
• B)poorly managed.
• C)undervalued.
• D)risky.

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Definitions:

Straight-line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal yearly amounts.

Net Income

The comprehensive earnings of a corporation after expenses and taxes have been taken away from its revenues.

Discount Rate

A rate used to determine the present value of future cash flows, reflecting the time value of money and risk of the cash flows.

Profitability Index

A calculation that determines the relative profitability of an investment, indicating the value created per unit of investment.