Question #79
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: 28
Status: Unattempted
Question
An increase in return on equity (ROE) will cause a price-to-book (P/
Answer Choices:
A. decrease
B. there is insufficient information to tell
Explanation
An increase in ROE should increase the price to book (P/B) ratio:
P0 / B0 = (ROE – g) / (r – g)