ABC Corporation and DEF Corporation operate in the same industry. ABC has a PE ratio that is 50% higher than DEF Corporation. Which of the following accounts for some of the difference in the observed PE ratios?

I. ABC uses more conservative accounting principles.
II. ABC has a higher cost of equity capital.
III. ABC has higher expected future growth.
IV. DEF uses FIFO and ABC uses LIFO.

A)I, II, III, and IV
B)I, III, and IV
C)I and III
D)II, III, and IV

Question

ABC Corporation and DEF Corporation operate in the same industry. ABC has a PE ratio that is 50% higher than DEF Corporation. Which of the following accounts for some of the difference in the observed PE ratios?

I. ABC uses more conservative accounting principles.
II. ABC has a higher cost of equity capital.
III. ABC has higher expected future growth.
IV. DEF uses FIFO and ABC uses LIFO.

A)I, II, III, and IV
B)I, III, and IV
C)I and III
D)II, III, and IV

Quizplus · Accepted Answer

The Answer of ABC Corporation and DEF Corporation operate in the same industry. ABC has a PE ratio that is 50% higher than DEF Corporation. Which of the following accounts for some of the difference in the observed PE ratios?

I. ABC uses more conservative accounting principles.
II. ABC has a higher cost of equity capital.
III. ABC has higher expected future growth.
IV. DEF uses FIFO and ABC uses LIFO.

A)I, II, III, and IV
B)I, III, and IV
C)I and III
D)II, III, and IV

ABC Corporation and DEF Corporation Operate in the Same Industry