The reciprocal of the risk-adjusted equity cost of capital used is the

A) return on assets.
B) return on common equity.
C) price earnings ratio.
D) profit margin on sales.

Question

The reciprocal of the risk-adjusted equity cost of capital used is theA) return on assets.B) return on common equity.C) price earnings ratio.D) profit margin on sales.

Kirti Hooda · Accepted Answer

Final Answer : C, Explanation :  The reciprocal of the risk-adjusted equity cost of capital is essentially the price earnings ratio. This is because the price earnings ratio is calculated by dividing the market value per share by the earnings per share, which can be seen as the inverse of the equity cost of capital when adjusted for risk. This ratio reflects how much investors are willing to pay per dollar of earnings, which inversely relates to the cost of equity capital for the company.

The reciprocal of the risk-adjusted equity cost of capital used is the

A) return on assets.
B) return on common equity.
C) price earnings ratio.
D) profit margin on sales.

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