Which of the Following Variables Has an Inverse Relationship with the P/E

question 49

Multiple Choice

Which of the following variables has an inverse relationship with the P/E ratio?

• A)payout ratio
• B)expected growth rate of dividends
• C)expected growth rate of earnings
• D)required rate of return

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Definitions:

Tax Shield

A reduction in taxable income for an individual or corporation achieved through claiming allowable deductions such as mortgage interest, medical expenses, or depreciation.

Bankruptcy Costs

Expenses associated with the process of declaring bankruptcy, including legal, administrative, and direct costs.

Modigliani

Franco Modigliani, an economist known for his work in corporate finance, especially the Modigliani-Miller theorem regarding capital structure and the dividend irrelevance theory.

Miller

Often refers to a person who operates a mill, a machine to grind a cereal crop to make flour.