Company A B C D PE Ratio 22.50 24.20 20.00 60.00

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 11P
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Case Study 1: A common measure of the relative value of a company's stock is the price to
earnings ratio... A relatively low PE indicates either a relatively undervalued stock or a
company expected to have low or even negative future earnings growth, while a relatively high
PE indicates either an over-valued stock or a company expected to have robust future earnings
growth. Consider the following companies, for which we want to determine the aggregate PE:
Company
A
B
с
D
PE Ratio
22.50
24.20
20.00
60.00
Find the right statistical tool, then state the reason for using that tool.
Transcribed Image Text:Case Study 1: A common measure of the relative value of a company's stock is the price to earnings ratio... A relatively low PE indicates either a relatively undervalued stock or a company expected to have low or even negative future earnings growth, while a relatively high PE indicates either an over-valued stock or a company expected to have robust future earnings growth. Consider the following companies, for which we want to determine the aggregate PE: Company A B с D PE Ratio 22.50 24.20 20.00 60.00 Find the right statistical tool, then state the reason for using that tool.
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