Which of the following statements is CORRECT?
A) Typically, a firm's DPS should exceed its EPS.
B) Typically, a firm's net income should exceed its EBIT.
C) If a firm is more profitable than average (e.g., Google), we would normally expect to see its stock price exceed its book value per share.
D) If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.
E) The more depreciation a firm has in a given year, the higher its EPS, other things held constant.

Question

Quizplus · Accepted Answer

Stock price is influenced by a variety of factors, but a firm's profitability is certainly one of them. If a firm is more profitable than its competitors or more profitable than average for its industry, we would expect to see investors bid up the price of its stock, which would cause its market value to exceed its book value per share.

Which of the Following Statements Is CORRECT