Suppose that a firm has a price-earnings ratio which is higher than a value deemed to be normal. Investors tend to infer from th
1 answer:
Answer:
(C) The Firm's stock is overvalued and one should consider selling the stock
Explanation:
Price Earnings Ratio is a measure of market price of stock in relation to it's earnings. It shows how well a company's stock is valued in the market.
Price Earnings Ratio =
A high price earnings ratio would lead investors to believe that the firm's stock prices are higher than it's earnings which means the stock prices are overvalued.
This further means, the market price of those stocks is greater than their fair value and it would be beneficial to investors to sell such stocks as it would result into a gain.
Thus, a higher price earnings ratio will lead investors to infer that the firm's stock is overvalued and one should consider selling the stock.
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Answer:
Compute the increase or decrease that closing Store 3 should cause in: a. Total monthly sales for Drexel-Hall stores.
- total monthly sales should decrease from $1,800,000 to $1,380,000 = a $420,000 reduction
b. The monthly responsibility margin of Stores 1 and 2.
- store 1 responsibility margin increased from 10% to 12.55% (2.55% increase)
- store 2 responsibility margin increased from 9% to 13.69% (4.69% increase)
c. The company’s monthly income from operations.
- increased from $72,000 to $140,200 ($70,200 increase)
Explanation:
Store Store Total
1 2
Sales $660,000 $720,000 $1,380,000
Variable costs $409,200 $453,600 $862,800
Contribution margin $250,800 $266,400 $517,200
Controllable fixed costs $120,000 $102,000 $222,000
Performance margin $130,800 $164,600 $292,200
Committed fixed costs $48,000 $66,000 $114,000
Store responsibility margin $82,800 $98,600 $178,200
Common fixed costs $38,000
Income from operations $140,200
