Firms with higher expected growth opportunities usually sell for:
A) a lower price earnings multiple.
B) the same price earnings multiple for all firms.
C) a higher price earnings multiple.
D) a price that depends on the payout ratio only.
E) a price independent of the P/E.

Question

Quizplus · Accepted Answer

Firms with higher expected growth opportunities typically sell for a higher price earnings (P/E) multiple because investors are willing to pay more for the anticipated future earnings growth. This expectation of higher future earnings justifies a higher current price relative to current earnings.

Firms with Higher Expected Growth Opportunities Usually Sell For