You are analyzing three large-cap US stock issues with approximately equal earnings growth prospects and risk. As
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You are analyzing three large-cap US stock issues with approximately equal earnings growth prospects and risk. As one step in your analysis, you have decided to check valuations relative to the S&P 500 Composite Index. Exhibit 7 provides the data.
Based only on the data in Exhibit 7, address the following:
i. Explain which stock appears relatively undervalued when compared with the S&P 500.
ii. State the assumption underlying the use of five-year average P/E comparisons.
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