VBA Corporation paid dividends of $2 per share in 2015 on earnings of $4 per share. The book value of equity per share was $40, and earnings were expected to grow 2% a year in the long term. The stock had a beta of 1.58, and was selling for $48 per share. The Treasury bond rate was 3%, and the market risk premium was 5.5%.

a. Assume the ROE will remain constant, but payout will change to a long-term sustainable level. Based on fundamentals, estimate the price-to-book value (PBV) ratio for VBA.

b. How much would the ROE have to increase to justify the price-to-book value ratio at which VBA was selling for in 2015?