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 P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next 5 years.
A) 23.7
B) 16.4
C) 15.3
D) 8.3
E) 3.8

Question

Quizplus · Accepted Answer

ln (X)= 5 ln (1.14/1.04)
ln (X)= 5 ln (1.096)
ln (X)= 5 (.092)= .46 X = 1.584
The P/E would be 15 × 1.584 = 23.7

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