Even Better Products has come out with a new and improved product. As a result, the firm

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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 .30. Its earnings this year will be $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?

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?

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Essentials of Investments

ISBN: 978-0078034695

9th edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus

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