The permanent component of earnings will change over time causing investors to revise their forecasts which will lead to a change in a firm's _____.

Question

Quizplus · Accepted Answer

The permanent component of earnings refers to the stable and predictable earnings that a firm has over time. As these earnings change, investors will revise their forecasts of future earnings, which will in turn affect the firm's price-earnings ratio. The price-earnings ratio is a key measure of market valuation and reflects how much investors are willing to pay for each dollar of earnings. A change in the price-earnings ratio will have significant implications for the firm's stock price and investor sentiment. The other options, such as liquidation value, book value, and dividend payout ratio, are not directly affected by changes in the firm's earnings forecasts in the same way as the price-earnings ratio.

The Permanent Component of Earnings Will Change Over Time Causing