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3. Company A’s estimated EPS for the next twelve months (NTM) is $1.50. Its closest competitor,...

3. Company A’s estimated EPS for the next twelve months (NTM) is $1.50. Its closest competitor, Company B, is trading at a P/E (NTM) of 22. Assume the companies have a similar operating and financial profile.

a. If Company A's stock were trading at $37.50, what would that indicate about its value relative to Company B? Explain.

b. If we assume that Company A’s stock should trade at about the same P/E as Company B's stock, what will we estimate as an appropriate price for Company A’s stock?

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