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 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 9-4 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)