Youre thinking about buying some stock in Affiliated Computer Corporation and want to use the P/E approach

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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 $3.25 a share. In addition, although the stock normally trades at a relative P/E of 1.2 times the market, you believe that the relative P/E will rise to 1.3, whereas the market P/E should be around 17 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 $64.13, what rate of return will you earn if the price of the stock rises to your valuation? (Assume that the stock doesn’t pay dividends.)


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Fundamentals Of Investing

ISBN: 9780135175217

14th Edition

Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk

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