A high price-to-book ratio may indicate which one of the following?
A)The firm expanded its plant and equipment in the past few years.
B)The firm is doing a better job controlling its inventory expense than other related firms.
C)Investors may believe that this firm has opportunities of earnings a rate of return in excess of the market capitalisation rate.
D)The firm's P/E ratio is too high.

Question

Quizplus · Accepted Answer

A high price-to-book ratio indicates that investors may believe that the firm has opportunities to earn a rate of return in excess of the market capitalization rate. This means investors are willing to pay more for each dollar of assets because they believe the company can generate higher returns from those assets. The other options do not directly correlate with a high price-to-book ratio.

A High Price-To-Book Ratio May Indicate Which One of the Following