Solutions to Chapter 1

g = return on equity ( plowback ratio = 0.24 ( 0.50 = 0.12 = 12.0%. Market value = Market-to-book ratio = $800/$200 = 4. Now g falls to (0.10 ( 0.50) = 0.05, earnings decline to $20 million, and dividends decline to $10 million. Market value = Market-to-book ratio = ½ ................
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