a. Calculate the price of a firm with a plowback ratio of .60 if its ROE is

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a. Calculate the price of a firm with a plowback ratio of .60 if its ROE is 20%; the coming year’s earnings, E1, will be $5 per share; and k = 12.5%.

b. What if ROE is 10%, which is less than the market capitalization rate? Compare the firm’s price in this instance to that of a firm with the same ROE and E1 but a plowback ratio of b = 0. P-69

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ISE Investments

ISBN: 9781266085963

13th International Edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus

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