A firm expects earnings next year of $10.00 per share, has a plowback ratio of 35%, a return on equity of 20%, and a required return of 15%. Mathematically illustrate the computation of the current stock value and next year's expected stock value, assuming that growth is constant. Also illustrate how the earnings plowback leads to the price increase.

Answer rating: 100% (QA)

Plowback ratio is the ratio of earnings that the company does no... View the full answer