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Companies A and B are valued as follows: A B # of shares 2,000 1,000 Earnings per share $ 20 $ 10 Share price $
Companies A and B are valued as follows:
A | B | |
# of shares | 2,000 | 1,000 |
Earnings per share | $ 20 | $ 10 |
Share price | $ 100 | $ 75 |
Given that the price-earnings ratio of Company B is 50% larger than the price-earnings ratio of Company A, Company A has decided to pay a premium of 50% to acquire the shares of Company B. Is Company A making a good investment decision? Please justify your answer.
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