USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Harcourt Industries currently has an 18 percent annual growth rate, while the market average is 8 percent. The market multiple is 12.
-Refer to Exhibit 9.12. Determine the P/E ratio for Harcourt Industries assuming Harcourt can maintain its superior growth rate for the next three years.
A) 4.25
B) 12.50
C) 15.67
D) 30.10
E) 42.80

Question

Quizplus · Accepted Answer

To calculate the P/E ratio for Harcourt Industries, we can use the formula: 
P/E ratio = market multiple * (growth rate / market average)
= 12 * (1.18/1.08) ^ 3
= 15.67
Therefore, the best choice is C.