Your investment club is considering purchasing stock in XY Software Company or Icon Furniture & Appliance Company $($see information below$).$ You are forecasting a healthy economy and strong stock market over the next year. XY Software's stock has higher price$-$earnings and price$-$book ratios than IFAC.

a$.$ Identify and briefly discuss three reasons why the disparity in ratios may or may not indicate that XY Software's shares are overvalued in comparison with IFAC's shares. Do this in light of the P$/$E and P$/$B ratios. Assume there have not been any extraordinary events affecting either company. XY Software IFAC S&P $500$ Current price $$36\mathrm{.}00,$$$39\mathrm{.}00,-$

P$/$E ratio $($current$)26,18,20$

P$/$E ratio $(5-$year average$)28,20,20$

P$/$B ratio $($current$)11,4,4$

P$/$B ratio $(5-$year average$)13,5,3$

Beta $1\mathrm{.}5,1\mathrm{.}1,1$

Dividend yield $0\mathrm{.}50\%,3\mathrm{.}10\%,3\mathrm{.}30\%$