All of the following are economic factors that will decrease a firm's value-to-book ratio over time except:
A) decreasing competition that drives the firm's ROCE down
B) increasing systematic risk that increases the firm's equity cost of capital over time
C) a loss of competitive advantage through changes in technology or other factors
D) retaining earnings or issuing equity capital and deploying the capital in activities that generate ROCE levels that are lower than current levels

Question

Quizplus · Accepted Answer

Decreasing competition that drives the firm's ROCE down would actually increase a firm's value-to-book ratio over time, as it would lead to an increase in the firm's profitability and therefore a higher valuation. The other options - B, C, and D - are all economic factors that can decrease a firm's value-to-book ratio over time.

All of the Following Are Economic Factors That Will Decrease