Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Can you please help me solve this thank you You're thinking about buying some stock in Affiliated Computer Corporation and want to use the P/E

image text in transcribedCan you please help me solve this thank you

You're thinking about buying some stock in Affiliated Computer Corporation and want to use the P/E approach to value the shares. You've estimated that next year's earnings should come in at about $4.66 a share. In addition, although the stock normally trades at a relative P/E of 1.16 times the market, you believe that the relative P/E will rise to 1.29, whereas the market P/E should be around 16.7 times earnings. Given this information, what is the maximum price you should be willing to pay for this stock? If you buy this stock today at $93.07, what rate of return will you earn if the price of the stock rises to your valuation? (Assume that the stock doesn't pay any dividends.) The maximum price you should be willing to pay for this stock is $. (Round to the nearest cent.) The rate of return is%. (Round to two decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Return Distributions In Finance

Authors: Stephen Satchell, John Knight

1st Edition

0750647515, 978-0750647519

More Books

Students also viewed these Finance questions

Question

Analyse the process of new product of development.

Answered: 1 week ago

Question

Define Trade Mark.

Answered: 1 week ago