McDonald's shares currently sell for $123.Its expected earnings per share are $5.12.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, its shares price would [blank].

Question

Quizplus · Accepted Answer

The correct answer is A because the current P/E ratio for McDonald's is 123/5.12 = 24, which is equal to the average P/E ratio for the industry. This indicates that investors are currently valuing McDonald's shares in line with the average firm in the same industry, and therefore its share price would be expected to stay about the same.

McDonald's Shares Currently Sell for $123