Companies E and P each reported the same earnings per share (EPS), but Company E's stock trades at a higher price. Which of the following statements is correct?
A) Company E probably has fewer growth opportunities.
B) Company E is probably judged by investors to be riskier.
C) Company E must pay a lower dividend.
D) Company E trades at a higher P/E ratio.

Question

Quizplus · Accepted Answer

If two companies have the same EPS but one trades at a higher price, it means that investors are willing to pay more for each dollar of earnings from that company. This implies that Company E has a higher P/E ratio than Company P, indicating that investors are willing to pay more for its growth prospects. Therefore, option D is the correct answer. Options A, B, and C are not necessarily true based on the given information.

Companies E and P Each Reported the Same Earnings Per