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Homework answers / question archive / Even Better Products has come out with an even better product
Even Better Products has come out with an even better product. As a result, the
firm projects an ROE of 20%, and it will maintain a plowback ratio of 0.30. Its
earnings
this year will be $2 per share. Investors expect a 12% rate of return on the
stock. (please use formula?
a. At what price and P/E ratio would you expect the firm to sell?
b. What is the present value of growth opportunities?
c. What would be the P/E ratio and the present value of growth opportunities if the firm
planned to reinvest only 20% of its earnings?
