Ashley Homebuilding is about to go public. The investment firm of Blake, Webber and Company is attempting to price the issue. The home building industry generally trades at a 20 percent discount below the P/E ratio on the S&P /TSX Composite Index. Assume that index currently has a P/E ratio of 15. The firm can be compared to the car rental industry as follows:

Assume, in assessing the initial P/E ratio, the investment dealer will first determine the appropriate industry P/E based on the S&P/TSX Composite Index. Then a half point will be added to the P/E ratio for each case in which Ashley Homebuilding is superior to the industry norm, and a half point will be deducted for an inferior comparison. On this basis, what should the initial P/E be for the firm?

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Home building industry Ashley 12 percent Increased earnings 4 out of 5 years 55 percent Slightly below average High Growth rate in earnings per share... Consistency of performance...... 10 percent Increased earnings 3 out of 5 years 40 percent Average Average Debt to total assets... Turnover of product.. .... Quality of management..