Masha plc is a publicly traded company in stable growth, expecting to grow at 4% a year in perpetuity. In the most recent year, it reported a net income of 10 million and its book value of equity was 100 million. Its cost of equity is 12%.

a. Estimate the intrinsic P/B ratio for the company. (2 marks)

b. Assuming its return on equity remains unchanged, what will be the impact of increased reinvestment on the growth rate and the P/B ratio of Mash plc?

(3 marks)