Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed

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. (Do not round intermediate calculations. Round your answers to 2 decimal places.) $ Price P/E ratio 50.00 16.67 b. Find the price and P/E ratio of the firm if the plowback ratio is reduced to 0.40. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Price P/E ratio $ 40.00 13.33%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Commercial Real Estate Finance

Authors: Gail Ramshaw, Mortgage Bank

1st Edition

0793157099, 9780793157099

More Books

Students also viewed these Finance questions