A Firm Has an ROE Equal to the Industry Average

question 74

Multiple Choice

A firm has an ROE equal to the industry average, but its price-to-book ratio is below the industry average. You know that the firm's ________.

• A) earnings yield is above the industry average
• B) P/E ratio is above the industry average
• C) dividend payout ratio is too high
• D) interest burden must be below the industry average

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Definitions:

Competitors

Other businesses or individuals that offer similar products or services within the same market.

Variable Costs

Costs that change in proportion with the level of output or activity.

Fixed Costs

Costs that do not change with an increase or decrease in the amount of goods or services produced or sold.

Corporate Tax Rate

The percentage of a company's taxable income that it pays to federal, state, or local tax authorities.