True or False An increase in the P/E ratio will decrease the value of a business...

Question

Question

True or False

An increase in the P/E ratio will decrease the value of a business using capitalization of earnings.

Answer 1

Answer #1

False.

Under Capitalization of earnings method for valuing business Earnings are multiplied with P/E to value the business.

Therefore Increase in P/E will increase the value and not decrease.

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Answer 2

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