ABC Inc.’s common shares have a market value of $60 per share and its EPS is $3.50. XYZ Inc.’s common shares have a market value of $85 per share and its EPS is $4.10. You have done thorough research and are considering purchasing the shares of one of these companies.
a. Calculate the price–earnings ratio for each company (round to two decimal places).
b. Which company’s shares will you purchase based on your calculations in (a) above?