Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed

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 $3.42 a share. In addition, although the stock normally trades at a relative P/E of 1.19 times the market, you believe that the relative P/E will rise to 1.32, whereas the market P/E should be around 16.9 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 $73.65, 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.)

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_2

Step: 3

blur-text-image_3

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

AQA AS Accounting Unit 2 Financial And Management Accounting

Authors: Brendan Casey

1st Edition

1500684260?, 978-1500684266

More Books

Students also viewed these Finance questions

Question

What do you notice have been hits in terms of meeting your mission?

Answered: 1 week ago