Question 1.c (5 marks)

Ingrid is considering using the existing cash at bank to fund the purchase of some shares and has identified two companies of interest:

ABC Limited

- share price AUD4.50

- projected earnings per share AUD0.45

- projected dividend per share AUD0.20

- average price earnings ratio for similar companies 8.5 to 1

XYZ Limited

- share price AUD12.50

- projected earnings per share AUD1.50

- projected dividend per share AUD0.60

- average price earnings ratio for similar companies 10.5 to 1

Appraise these two companies and make a recommendation (make sure you state your reasons). (5 marks)