Which of the following statements is correct? a) If Firms X and Y have the same

Question

Which of the following statements is correct?
a) If Firms X and Y have the same P/E ratios, the their market-to-book ratios must also be equal.
b) If Firms X and Y have the same net income, number of shares outstanding, and price per shares, then their P/E ratios must also be the same.
c) If Firms X and Y have the same earnings per share and market-to-book ratio, they must have the same price/earnings income.
d) If Firm X’s P/E ratio exceeds that of firm Y, then Y is likely to be less risky and/or be expected to grow at a faster rate.
e) If Firms X and Y have the same net income, numbers of shares outstanding, and price per share, then their market-to-book ratios must also be the same.

Explanation / Answer

The corect option is option B.

explanation:

if 2 firms have same net income, aslo the number of shares outstanding are equal and the price are also equal.

The both firms will have same EPS as the formula of the EPS is the Net income divided by the number of outstanding shares and both the variables of Firm X and y are equal.

the same EPS will result in the same PE ratio.

therefore, the correct statement is B.

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