The current price of a share of common stock reflects current economic conditions, not the requirements of authoritative guidance.Market-to-book-value ratios tend to be large for firms that
A)make substantial expenditures on internally developed assets.
B)have a favorable competitive position.
C)have a favorable growth potential.
D)All of the above are correct.
E)None of these answer choices is correct.

Question

Quizplus · Accepted Answer

All three options (A, B, and C) tend to increase the market-to-book-value ratios. Firms that make substantial expenditures on internally developed assets tend to have higher book values, while firms with a favorable competitive position and growth potential tend to have higher market values. Therefore, firms that have these characteristics tend to have higher market-to-book-value ratios.

The Current Price of a Share of Common Stock Reflects