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Which of the following combinations will produce the

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102.Which of the following combinations will produce the highest growth rate?Assumethat the firm's projects offer a higher expected return than the market capitalizationrate.A)a high plowback ratio and a high P/E ratioB)a high plowback ratio and a low P/E ratioC)a low plowback ratio and a low P/E ratioD)a low plowback ratio and a high P/E ratioE)Neither the plowback ratio nor the P/E ratio is related to a firm's growth.Answer: ADifficulty: ModerateRationale: The firm will grow more rapidly if it retains earnings to invest in positiveNPV projects.As for the P/E ratio's relationship to growth, the growth rate willincrease as long as the projects' expected returns are higher than the marketcapitalization rates.If the expected returns are lower than the market capitalizationrates, the growth rate will fall.
103.Low P/E ratios tend to indicate that a company will _______, ceteris paribus.
104.Earnings managements isDifficulty: Easy
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Chapter 18Equity Valuation Models105.A version of earnings management that became common in the 1990s wasDifficulty: Easy
106.GAAP allowsA)no leeway to manage earnings.B)minimal leeway to manage earnings.C)considerable leeway to manage earnings.D)earnings management if it is beneficial in increasing stock price.E)none of the above.Answer: CDifficulty: Easy

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Term
Three
Professor
WangJianxin
Tags
Valuation, Dividend yield, P E ratio, Equity Valuation Models

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