30. Constant-growth DCF formula (S4.4) The constant-growth DCF formula: P 0 =_ Dr_I_V_g_ 1 is sometimes written

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30. Constant-growth DCF formula (S4.4) The constant-growth DCF formula:

P 0  =  _ Dr_ −I_V_ g_ 1 is sometimes written as:

P 0  =    R_O_E_ ( _ 1_ −__ b_ )_ B_V_P_S_ 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?

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