Vinnie's Motors has a market-to-book ratio of 3.4.The book value per share is $34 and earnings per share are $1.36.Holding the market-to-book ratio and earnings per share constant,a $1 increase in the book value per share will:

Question

Quizplus · Accepted Answer

If the market-to-book ratio and earnings per share are constant, a $1 increase in book value per share means that the market price per share must also increase by $3.4 (3.4 x $1). This increase in market price per share will cause the price-earnings ratio to increase. Therefore, option D is correct.

Vinnie's Motors Has a Market-To-Book Ratio of 3