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The industry average P/E ratio for the construction industry is 15.2 Key Construction, Inc.’s expected earnings...

The industry average P/E ratio for the construction industry is 15.2 Key Construction, Inc.’s expected earnings per share for next year is $3.48. According to the price/earnings valuation method, what is the value of Key’s stock?

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Expert Solution

The industry average P/E ratio for the construction industry is 15.2

earnings per share for next year is $3.48

for finding out the value of the stock according to the price earning valuation method, Multiply the stock's P/E ratio by its EPS to calculate its actual market value.

Value of stock = 15.2 * 3.38

                        = 51.376

Multiply the industry average P/E ratio by the stock’s EPS to estimate the price at which the stock would trade if its P/E ratio equaled the industry average. Generally, companies in the same industry may trade at similar P/E ratios.

jeff jeffy answered 2 years ago
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