McDonald's stock currently sells for $103.It's expected earnings per share are $5.50.The average P/E ratio for the industry is 24.If investors expected the same growth rate and risk for McDonald's as for an average firm in the same industry,it's stock price would

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The average P/E ratio for the industry is 24, so if investors expected the same growth rate and risk for McDonald's as for an average firm in the same industry, then its P/E ratio should also be 24. Therefore, the estimated stock price for McDonald's would be P/E ratio x earnings per share = 24 x $5.50 = $132. Since the current stock price is lower than the estimated stock price, the stock price would rise.

McDonald's Stock Currently Sells for $103