Basu (1977, 1983) found that firms with low P/E ratios
A. earned higher average returns than firms with high P/E ratios.
B. earned the same average returns as firms with high P/E ratios.
C. earned lower average returns than firms with high P/E ratios.
D. had higher dividend yields than firms with high P/E ratios.
A. earned higher average returns than firms with high P/E ratios.
Firms with high P/E ratios already have an inflated price relative to earnings and thus tend to have lower returns than low P/E ratio stocks. However, the P/E ratio may capture risk not fully impounded in market betas so this may represent an appropriate risk adjustment rather than a market anomaly.
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A disadvantage of the corporate form of business entity is
a. mutual agency for stockholders b. unlimited liability for stockholders c. corporations are subject to more governmental regulations d. the ease of transfer of ownership
Two basic types of inventory cost accounting systems are job order cost systems and factory cost systems
Indicate whether the statement is true or false
Which of the following statements is CORRECT?
A. The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company. B. The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock. C. The free cash flow valuation model, Vops =FCF1/(WACC ? g), cannot be used for firms that have negative growth rates. D. The free cash flow valuation model, Vops = FCF1/(WACC ? g), can be used only for firms whose growth rates exceed their WACC. E. If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.
Once an activity is begun, it is assumed to be half done under the:
A) "Once begun, half done" rule. B) Minimal effort rule. C) Midway rule. D) 50/50 rule.