Castles in the Sand generates a rate of return of 15% on its investments and maintains a plowback ratio of 0.50. Its earnings this year will be $6 per share. Investors expect a rate of return of 12% 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.)
b. Find the price and P/E ratio of the firm if the plowback ratio is reduced to 0.40. (Do not round intermediate calculations. Round your answers to 2 decimal places.)