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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