If a firm\'s ROCE = R E and is expected to stay that way indefinitely in future,

Question

If a firm's ROCE = RE and is expected to stay that way indefinitely in future, it will:

create additional shareholder wealth and be valued above book value.

maintain shareholder wealth and be valued at book value.

destroy shareholder wealth and be valued below book value.

be in a negative growth state.

create additional shareholder wealth and be valued above book value.

maintain shareholder wealth and be valued at book value.

destroy shareholder wealth and be valued below book value.

be in a negative growth state.

Explanation / Answer

IF A FIRM'S ROCE = RE AND IS EXPECTED TO STAY THAT WAY INDEFINITELY IN FUTURE, IT WILL: CREATE ADDITIONAL SHAREHOLDER WEALTH AND BE VALUED ABOVE BOOK VALUE.

AS THE TOTAL EARNNING BELONGS TO THE SHAREHOLDERS VALUE WILL BE INCEREASED.

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