Exhibit 9-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The Valentine Company currently has a 14% annual growth rate while the market average is 4%. The market multiple is 15.
-Refer to Exhibit 9-4. 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 9-4 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)