When a firm has growth that only meets, rather than exceeds, the cost of capital, we would expect its price-earnings multiple to be approximately equal to:

Question

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When a firm's growth rate is equal to its cost of capital, its price-earnings (P/E) multiple tends to be equal to the reciprocal of its required return on equity. This is because the P/E ratio reflects the present value of future earnings, and when growth equals the cost of capital, future earnings are discounted at a rate that makes the present value equal to the reciprocal of the required return.

When a Firm Has Growth That Only Meets, Rather Than