Castles in the Sand generates a return on equity of 5.80% (i.e.. ROE) and maintains a plowback ratio of 42.50%. Its earnings at the end of this year will be $5.00 per share. Investors expect a 8.70% 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 38.25%? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Price $ ?
P/E ratio ?