Question #28
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 10
Status: Correct
Correct Answer: A
Question
The price-to-book value (PBV) ratio for a high-growth firm will:
Answer Choices:
A. increase as the growth rate in either the high-growth or stable-growth period increases
B. increase as the growth rate in the high-growth period increases and decrease as the growth rate in the stable-growth period increases
C. increase as the growth rate in either the high-growth or stable-growth period decreases
Explanation
The PBV ratio for a high-growth firm will be determined by growth rates in earnings in
both the high-growth and stable-growth periods. The PBV ratio increases as the growth
rate increases in either period.