Companies E and P each reported the same earnings per share (EPS),but Company E's stock trades at a higher price.Which of the following statements is correct?
A)Company E probably has fewer growth opportunities than company P.
B)Company E is probably judged by investors to be riskier than company P.
C)Company E must pay a lower dividend than company P.
D)Company E trades at a higher P/E ratio than company P.

Question

Quizplus · Accepted Answer

Since both E and P have the same EPS, the higher stock price for Company E indicates that investors are willing to pay more for each dollar of earnings. This means that Company E likely has a higher P/E ratio than Company P, which could be due to factors such as a stronger brand or better growth prospects. Thus, choice D is the correct answer. Note that we cannot infer anything about growth opportunities, riskiness, or dividends solely based on the information given.

Companies E and P Each Reported the Same Earnings Per