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The shares of Fencer plc are currently valued on a P/E ratio of 8. The company is
considering a takeover bid for Seed Limited, but the shareholders of Seed have indicated
that they would not accept an offer unless it values their shares on a P/E multiple of at
Which TWO of the following are reasons which might justify an offer by Fencer plc for the
shares of Seed on a higher P/E multiple?
A Fencer has better growth prospects than Seed
B Seed has better-quality assets than Fencer
C Seed has a higher gearing ratio than Fencer
D Seed is in a different country from Fencer, where average P/E ratios are higher
and the answer is B and D
My question is if Seed has a higher gearing ratio than fencer,it means it has more debt and that means the EPS decreases and since EPS is the denominator of PE ratio, PE increases?Is this logic right?if its right why isnt C the right answer