Castles in the Sand generates a rate of return of 20% on its investments and maintains a plowback ratio of. 30. Its earnings this year will be $5 per share. Investors expect a 12% rate of return on the stock. a. Find the price and P/E ratio of the firm.
b. Find the price and P/E ratio of the firm if the plowback ratio is reduced to 0.20.
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