Question

Which of the following statements is CORRECT?
a. Typically, a firm's net income should exceed its EBIT.
b. The more depreciation a firm has in a given year, the higher its EPS, other things held constant.
c. Typically, a firm's DPS should exceed its EPS.
d. If a firm is more profitable than most other firms, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.
e. If a firm is more profitable than average, we would normally expect to see its stock price exceed its book value per share.

Answer 1

Answer:

E) If a firm is more profitable than average, we would normally expect to see its stock price exceed its book value per share.

Explanation:

If a firm is more profitable than average, it should have a large Goodwill, which represents the difference between the book value of a company and its potential sales value (the price needed to purchase the whole company). A firm's value is determined by it future cash flows, and profitable companies should be able to produce larger cash flows.