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Answer: Company 1
**Explanation:** - **Company 1** is the correct answer because its Price/Sales (8.9) and Price/Book (5.7) multiples are the highest among the three companies and significantly above the industry averages (6.2 and 4.7, respectively). Higher multiples generally indicate relatively expensive valuations, assuming all else is equal. - **Company 2** and **Company 3** are incorrect because their multiples are lower than both Company 1 and the industry averages, suggesting they are less likely to be overvalued. This question tests the understanding of using valuation multiples (Price/Sales and Price/Book) to assess relative equity valuations and identify potential overvaluation.
Author: LeetQuiz Editorial Team
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An analyst evaluates the following data for an industry and three comparable companies:
| Metric | Company 1 | Company 2 | Company 3 | Industry Average |
|---|---|---|---|---|
| Price/Sales | 8.9 | 3.2 | 5.7 | 6.2 |
| Price/Book | 5.7 | 2.6 | 2.3 | 4.7 |
Based solely on this information, which company is most likely overvalued?
A
Company 1
B
Company 2
C
Company 3
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