1). Calculate the price of a firm with a plowback ratio of .60, if its ROE is 20%.

Current earnings, E1 , will be $5 per share, and k = 12.5%.

a. 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.

2). ABC stock has an expected ROE of 12% per year, expected earnings per share of $2, and expected dividends of $1.50 per share. Its market capitalization rate is 10% per year.

a. What are its expected growth rate, its price, and its P/E ratio?

b. If the plowback rate were .4, what would be the firm's expected dividend per share, growth rate, price, P/E, and PEG ratio?