Exhibit 14.4
Use the Information Below for the Following Problem(S)
The Valentine Company currently has a 14% annual growth rate while the market average is 4 percent. The market multiple is 15.
-Refer to Exhibit 14.4.Determine the justified P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next 10 years.
A) 3.0
B) 9.2
C) 16.6
D) 28.6
E) 37.6

Question

Quizplus · Accepted Answer

ln (X)= 10 ln (1.14/1.04)
ln (X)= 10 ln (1.096)
ln (X)= 10 (.092)= .92 X = 2.51
Thus,the P/E ratio would be 2.51 × 15 = 37.6

Exhibit 14.4 Use the Information Below for the Following Problem(S)