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Castles in the Sand generates a rate of return of 10% on its investments and maintains a plowback ratio of 0.50. Its earnings this year
Castles in the Sand generates a rate of return of 10% on its investments and maintains a plowback ratio of 0.50. Its earnings this year will be $3 per share. Investors expect a rate of return of 8% on the stock.
a. Find the price and P/E ratio of the firm.
b. Find the price and P/E ratio of the firm if the plowback ratio is reduced to 0.40.
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