27. The constant-growth DCF formula:

P0

⫽

DIV1 r ⫺ g is sometimes written as:

P0

⫽

ROE 1 1 ⫺ b 2 BVPS 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?