The constant-growth DCF formula: P0 DIV1 r g is sometimes written as: P0 ROE11
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The constant-growth DCF formula:
P0
DIV1 r g is sometimes written as:
P0
ROE11 b2BVPS r bROE where BVPS is book equity value per share, b is the plowback ratio, and ROE is the ratio of earnings per share to BVPS. Use this equation to show how the price-to-book ratio varies as ROE changes. What is price-to-book when ROE r?
AppendixLO1
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