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Calculating price and price earning ratio in the given cases

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Castles in the Sand generates a rate of return of 15% on its investments and maintains a plowback ratio of .20. Its earnings this year will be \$2 per share. Investors expect a 12% 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.)

b. Find the price and P/E ratio of the firm, if the plowback ratio is reduced to .10? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

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Solution Preview

a. Find the price and P/E ratio of the firm. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Current earnings=Eo=\$2
Plowback ratio=b=0.20
Discount rate=k=12%
Rate of return=r=15%
Growth ...

Solution Summary

The solution describes the steps to calculate price and price earning ratio in the given cases.

\$2.19