Even Better Products has come out with a new and improved product. As a result, the firm projects an ROE of 20%, and it will maintain a plowback ratio of 0.40. Its projected earnings are $2 per share. Investors expect a 12% rate of return on the stock.
a. At what price and P/E ratio would you expect the firm to sell? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Price $
P/E ratio
b. What is the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
PVGO $
c. What would be the P/E ratio and the present value of growth opportunities if the firm planned to reinvest only 10% of its earnings? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
P/E ratio
PVGO $