Franchise P/Evalue & Potentional franchise value question statements, following, potential, therefore, question

tarik64

If a firm’s return on equity (ROE) is greater than the rate of return demanded by investors (r), which of the following statements is CORRECT? There is:
A) a high franchise P/E value.
B) negative franchise value.
C) potential franchise value.
Your answer: A was incorrect. The correct answer was C) potential franchise value.
If ROE is greater than r, then there is some benefit in reinvesting the earnings within the firm, therefore, there is potential franchise value.
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question on this: why is A not the correct answer? Intrinsic PE = tangible PE + franchise PE. is their rationale that since franchise PE = franchse factor x growth factor, having a higher ROE than r will raise your franchise factor but not necsarrily your franchise PE because growth (and thus the growth factor) may be very low? i never even saw the term “potential franchise value” in the schweser books, what is the definition of that?

tarik64

ok so in other words, you know franchise P/E will be highER due to the highER ROE, but cannot in the technical sense say it is HIGH because after all what is high.
so potential franchise value just says it could potentially be high due to the highER ROE.
and i guess if choice A said “higher franchise P/Evalue” then that could be a correct answer.
aam i reading all that right?