Exhibit 9-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Modular Industries currently has a 16% annual growth rate while the market average is 6%. The market multiple is 10.
-Refer to Exhibit 9-2. Determine the justified P/E ratio for Modular Industries assuming Modular can maintain its superior growth rate for the next 5 years.
A) 6.4
B) 13.1
C) 16.5
D) 23.8
E) 15.7

Question

Quizplus · Accepted Answer

ln (X) = 5 ln (1.16/1.06)
ln (X) = 5 ln (1.094)
ln (X) = 5 (.090) = 0.45 X = 1.57
Thus, the P/E ratio would be 1.57 ´ 10 = 15.7

Exhibit 9-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)