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Lion, Incorporated has 1 million common shares outstanding and a stock price of $35 per share. The company uses the straight-line method of depreciation to

Lion, Incorporated has 1 million common shares outstanding and a stock price of $35 per share. The company uses the straight-line method of depreciation to depreciate its fixed assets, and reports net income of $5,000,000. If the company used the double-declining balance method of depreciation, its depreciation expense would increase by $500,000. How would the company's price-to-earnings (P/E) ratio change if the company used the double-declining balance method to compute its depreciation expense? Assume that there is no change in the company's current tax rate of 30%.

a. The company's new P/E ratio would be 7.0.

b. The company's new P/E ratio would be 7.8.

c. The company's new P/E ratio would be 7.3

d. The company's new P/E ratio would be 7.5.

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