Castles in the Sand generates a rate of return of 20% on its investments and maintains a plowback ratio of .40. Its earnings this year will be $3 per share. Investors expect a 15% rate of return 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
b. Find the price and P/E ratio of the firm if the plowback ratio is reduced to .30. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Price $ P/E ratio