Asked by Nataly Cabrera on Jul 02, 2024

Risky firms have a higher risk-adjusted cost of capital.Which one of the following factors would contribute to that firm also having a high price/earnings ratio?

A) High earnings per share
B) Low earnings per share
C) Growth opportunities
D) High risk and high P/E ratio cannot occur simultaneously.

Price/Earnings Ratio

A valuation metric for a company that measures its current share price relative to its per-share earnings.

Growth Opportunities

Potential scenarios or plans that a company can undertake to increase its market share, revenues, or profitability.

  • Analyze the factors affecting a firm's price/earnings ratio and the implications of risk-adjusted cost of capital.