As Per the Price/earnings Ratio Method,a Company Should Adopt a Project

question 11

Multiple Choice

As per the price/earnings ratio method,a company should adopt a project when:

• A)the ratio of its initial cost-to-earnings is lower than the price to earnings ratio of the comparison investment.
• B)the ratio of breakeven value to earnings is lower than the price to earnings ratio of the comparison investment.
• C)the ratio of its initial current ratio is lower than the price to earnings ratio of the comparison investment.
• D)the ratio of its initial net income-to-earnings is higher than the price to earnings ratio of the comparison investment.

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Definitions:

Uniform Commercial Code

A comprehensive set of laws governing all commercial transactions in the United States, designed to standardize and simplify transactions.

Purchase Money Security Interest (PMSI)

A legal claim that allows a lender to repossess or foreclose on property if the borrower defaults on the loan used to purchase the property.

Collateral

Property or assets that a borrower offers to a lender as security for a loan. If the borrower defaults, the lender may seize the collateral to recoup its losses.

Automatic Stay

A legal provision that halts actions by creditors to collect debts from a debtor who has declared bankruptcy, giving the debtor temporary relief.