Question

Q3. Picosoft, Ltd a supplier of operating system software for personal
computers was planning the initial public offering of it's stock. The company
was contemplating a offering price of about 13 times earnings (P/E ratio = 13).
In order to check appropriateness of price they randomly chose 7 publicly
traded software firms and found that the average price earnings ratio was
11.6and standard deviation was 1.3. At a = 0.02 , can Picosoft conclude that the
stocks of publicly traded software firms have an average P/E ratio that is
significantly different from 13.

Answer 1

Answer:

Picosoft, Ltd a supplier of operating system software for personal

computers was planning the initial public offering of it's stock. The company

was contemplating a offering price of about 13 times earnings (P/E ratio = 13).

In order to check appropriateness of price they randomly chose 7 publicly

traded software firms and found that the average price earnings ratio was

11.6and standard deviation was 1.3. At a = 0.02 , can Picosoft conclude that the

stocks of publicly traded software firms have an average P/E ratio that is

significantly different from 13. thank you