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 0.30. Its projected earnings are $2 per share. Investors expect a 14% rate of return on the stock. a.
At what price and P/E ratio would you expect the firm to sell? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Price $
P/E ratio
b.
What is the present value of growth opportunities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

PVGO $
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? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

P/E ratio
PVGO $

Answer and Explanation:

The computation is shown below:

a. The price and P/E ratio is

Price = Current year dividend ÷ (Required rate of return - growth rate)

where,

Growth rate is

= ROE × plowback ratio

= 20% × 0.30

= 6%

And, the current year dividend is ×

= $2 × (1 - 0.30)

= $1.4

So, the price is

= $1.4 ÷ (0.14 - 0.06)

= $17.50

Now the P/E ratio is

= $17.50  ÷ 2

= 8.75

b)  For the present value of growth opportunities, the formula and the computation is

= Price of the stock - earnings ÷ required rate of return

= $17.50 - $2 ÷ 0.14

= 3.21

c)  The P/E ratio and the present value of growth opportunities is

But before that we need to find out the price which is

Price = Current year dividend ÷ (Required rate of return - growth rate)

where,

Growth rate is

= ROE × plowback ratio

= 20% × 0.20

= 4%

And, the current year dividend is

= $2 × (1 - 0.20)

= $1.6

So, the price is

= $1.6 ÷ (0.14 - 0.04)

= $16

Now the P/E ratio is

= $16  ÷ 2

= 8

And, the growth opportunities is

= Price of the stock - earnings ÷ required rate of return

= $16 - $2 ÷ 0.14

= 1.72

income statement is prepared in order to show the profits and loss of a business. in order to prepare the income statement she should collect all the income and expenses of the product with the cost of production.

the first successful, urban blues recording, selling more than 75,000 copies, was made in year 1920.

mamie smith recorded the first commercially successful example of the urban blues,   with the recording of “crazy blues”."crazy blues" was recorded on august 10, 1920, in new york city. within a month of the release of “crazy blues” it had sold 75,000 copies.