FYI - Plowback Ratio

The market equilibrium rate on the stock of Williams Brothers is 8.5%. Its expected return on equity is 12.5% and its expected earnings per share is $4.50. If the firm’s plowback ratio is 37.5%, its price to earnings ratio will be closest to: A 15.9 B 16.4 C 16.8 D 17.2 Plowback Ratio = Retention Rate

where you getting these questions from ditchdigger? plowback?? lol.

CFAI end of section questions! It has me worried since Schweser has no word of the plowback ratio.


I’m getting 16.39 ~ (B) is that correct ?

P/E = Dividend Payout Ratio/(k-g) P/E = .625/[(.085) - (.125-.375)] = 16.39

is that .125*0.375 not subtraction? :wink:

TheAliMan Wrote: ------------------------------------------------------- > is that .125*0.375 not subtraction? :wink: Yes, my apology. This is very different from the way Schweser presents questions. Looking at the end of chapter questions in the CFAI books seems to be a good way to get a peak as to how the exam questions will be written.

B? Thanks ditchdigger, good questions all of them.