a. Calculate the price of a firm with a plowback ratio of 0.60 if its ROE is 20%. Current earnings E₁, will be $5 per share, and k = 12.5%. b. 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 E, but a plowback rate of b=0.

a. Calculate the price of a firm with a plowback ratio of 0.60 if its ROE is 20%. Current earnings E₁, will be $5 per share, and k = 12.5%. b. 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 E, but a plowback rate of b=0.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

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