Castles in the Sand generates a rate of return of 14% on its investments and maintains a plowback ratio of .30. Its earnings this year will be $4 per share. Investors expect a 10% 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 .20. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Price $
P/E ratio