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.
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