Which of the following statements is correct?
A)If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.
B)If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.
C)Other things held constant, the higher a firm's expected future growth rate, the lower its P/E ratio is likely to be.
D)The higher the market/book ratio, then, other things held constant, the higher one would expect to find the market value added (MVA).

Question

Quizplus · Accepted Answer

A high market/book ratio indicates that the market values the company more highly than its book value, which often reflects the market's expectations of the firm's future growth potential. Therefore, a higher market/book ratio is generally associated with a higher Market Value Added (MVA), as it suggests that investors believe the company will generate more value in the future.

Which of the Following Statements Is Correct