Answer:
a) compute the price-earnings ratio for each of these four separate companies.
To find the price-earnings ratio fir each company, use the formula:
P.E ratio = Market value per share/ Earnings per share
Company 1:
Price-earnings ratio = [tex] \frac{176.40} {12.00} = 14.70 [/tex]
Company 2:
Price-earnings ratio = [tex] \frac{96.00}{10.00} = 9.6 [/tex]
Company 3:
Price-earnings ratio = [tex] \frac{93.75}{7.50} = 12.50[/tex]
Company 4:
Price-earnings ratio = [tex] \frac{250.00}{50.00} = 5.0 [/tex]
b) The market will have the lowest expectation of future performance from company 4 because
the price-earnings ratio of company 4 is the lowest.
