QUESTIONS 79 THROUGH 90 RELATE TO EQUITY INVESTMENTS

87. A fund manager compiles the following data on two companies:

Company A Company B

Return on assets 10.9% 9.0%

Return on equity 15.4% 14.3%

Dividend payout ratio 0.35 0.30

Required return on equity 13.0% 12.4%

Weighted average cost of capital 11.8% 11.7%

Based on the information provided, the most accurate conclusion is that Company A’s stock is

more attractive relative to that of Company B’s because of its:

A. smaller P/E ratio.

B. greater financial leverage.

C. higher dividend growth rate.