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Martell Ltd Is Expected to Generate an EPS Next Year

Question 13

Multiple Choice

Martell Ltd is expected to generate an EPS next year of $0.80 and its shares are currently priced in the marketplace at $13.11.Lannister Ltd is expected to generate an EPS next year of $0.51 and its shares are currently priced in the marketplace at $9.20.Baratheon Ltd is expected to generate an EPS next year of $0.23 and its shares are currently priced in the marketplace at $5.61.Stark Ltd is expected to generate an EPS next year of $0.56 and its shares are currently priced in the marketplace at $8.85.These companies all operate in the same industry,are expected to all have the same growth prospects and all have the same risk.The industry P/E prospective ratio is known to be 17x.Based upon the P/E ratios,which of the following would be the best investment strategy?


A) Buy Lannister and Baratheon shares and sell Stark and Martell shares.
B) Sell Lannister and Baratheon shares and buy Stark and Martell shares.
C) Sell Martell and Lannister shares and buy Stark and Baratheon shares.
D) Buy Martell and Lannister shares and sell Stark and Baratheon shares.

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